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Carbon Pricing and Investors’ Reactions: Evidence from Washington State

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  • Bohnet, Marc-Philipp
  • Carattini, Stefano
  • Sen, Suphi

Abstract

A recent debate in both academic and policy circles relates to whether financial markets are aligned with long-term climate mitigation goals or rather react to short-run changes in the probability of climate policy tightening – and if so by how much. In this study, we provide evidence from Washington state over five different key political events between 2016 and 2024, including the rejection of two initiatives and one senate bill aiming at implementing carbon taxation, the actual implementation of cap and invest, and the rejection of an initiative aimed at repealing it. We analyze stock market reactions to the ex ante uncertain outcomes of such votes. We leverage events taking place in neutral periods as well as during elections, in particular the rejection and approval of two distinct carbon pricing initiatives, both in conjunction with a Republican presidential victory. Our empirical approach allows isolating the effect of news about carbon pricing. Following each shock, we identify readjustments in the stock market, pointing to short-term reactions to climate-policy risk.

Suggested Citation

  • Bohnet, Marc-Philipp & Carattini, Stefano & Sen, Suphi, 2026. "Carbon Pricing and Investors’ Reactions: Evidence from Washington State," CEPR Discussion Papers 21433, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21433
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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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