Carbon Risk Premium and Worries about Climate Change

This paper sheds light on the impact of public attitudes towards climate change on the pricing of emission (carbon-intensive) and clean (low-emission) stocks. We develop a regional indicator of worries about climate change using data from the European Social Survey Round 8. We classify European regions as little worried, worried and very worried. We confirm previous evidence that emission stocks tend to have higher returns than clean stocks. However, when we focus on stocks quoted in exchange markets located in regions with low level of worries about climate change, we do not find evidence of a carbon risk premium. Conversely, the emission premium in worried regions is significant for medium-high quantiles of the return distribution.