High Carbon Emitters ‘Are Valued Lower’

S&P 500 companies’ value declines by $202,000, on average, for every additional thousand metric tons of carbon they emit, according to new research.

The study by researchers from the University of Wisconsin, University of Notre Dame and Georgetown University found that the negative correlation between emissions and value translates into a total value penalty of $1.28 billion for firms in the third quartile of emitters, relative to firms in the first quartile.

The authors note that this economic effect is large, considering that the direct costs of carbon emissions have recently been less than $40 per metric ton. The indirect costs of emissions, such as increased regulation, litigation, remediation and reputation impacts, are likely to be significant, they said.

“Our results suggest that the market attaches an implicit cost to carbon emissions, even though there is currently no explicit cost,” the authors wrote. “This evidence is consistent with capital markets rewarding firms that reduce their carbon emissions.”

The research found that the negative association between emissions and value applies to high and low-emitting firms. It applies both to industries required to report their emissions to the Environmental Protection Agency (labeled EPA=1 on the chart) and those that are not required to do so (EPA=0).

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