This study examines the pricing of carbon risk in the European equity market between 2013 and 2024 using two complementary proxies derived from the EU Emissions Trading System. We first employ the market-based carbon convenience yield as a forward-looking measure of expected regulatory tightening. The analysis documents a significant carbon risk premium associated with this signal. Conversely, we assess the realized financial impact of compliance through a firm-level carbon expense ratio. Despite the economic materiality of these costs, which reached 12.4% of operating income for the most exposed quartile firms in 2023, the associated return premium is found to be positive but not statistically significant. This distinction suggests that while investors price the expectation of future carbon costs, the realized financial impact has not yet translated into a discernible risk premium.
