Carbon pricing initiatives are effective in reducing GHG emissions, but do they negatively affect aggregate economy and firm performance? By examining their worldwide, staggered enactment across different jurisdictions, we find no evidence that these policies reduce the aggregate profitability, investments, or employment of publicly listed firms in the adopting jurisdictions. Instead, carbon pricing policies redistribute profits and investments from firms with high emission intensity to those with low emission intensity. Moreover, high-emission-intensity (low-emission-intensity) firms receive lower (higher) market values after the enactment of carbon pricing policies, driven by both a reduction in expected future cash flows and an increase in the discount rate. The lower profitability of high emission intensity firms relative to lower emission intensity firms is driven by both a decrease in sales growth and an increase in operating costs. Cross-country analyses show that the effect is more pronounced for firms headquartered in countries that rely more on fossil fuel energy, and the effect does not vary with countries’ exposure to physical climate risks. Overall, our findings uncover the large distributional impacts of carbon pricing policies on individual firms and complements prior studies focusing on the macroeconomy with mixed evidence. Our findings also have important normative implications, suggesting that carbon pricing initiatives help enhance firm-level carbon efficiency.
