{"title":"Pricing climate transition risk: Evidence from European corporate CDS","authors":"Michele Costola , Katia Vozian","doi":"10.1016/j.eneco.2025.108248","DOIUrl":null,"url":null,"abstract":"<div><div>The European low-carbon transition towards net-zero emissions by 2050 is gaining momentum. This study analyzes a major European firm’s climate-related transition indicators and their impact on CDS-implied credit risk across different time horizons. Results reveal market pricing of transition risk across all tenors, especially since the 2015 Paris Agreement. Carbon-intensive sectors like Electricity, Gas, and Mining face heightened transition risk pricing. Interestingly, the market may undervalue a company’s transition risk management efforts and participation in the EU ETS, possibly due to market inefficiencies. Predicting allowance prices’ impact on financial performance in the EU ETS market is notably challenging due to unique supply–demand dynamics.</div></div>","PeriodicalId":11665,"journal":{"name":"Energy Economics","volume":"143 ","pages":"Article 108248"},"PeriodicalIF":13.6000,"publicationDate":"2025-02-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Energy Economics","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0140988325000714","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
The European low-carbon transition towards net-zero emissions by 2050 is gaining momentum. This study analyzes a major European firm’s climate-related transition indicators and their impact on CDS-implied credit risk across different time horizons. Results reveal market pricing of transition risk across all tenors, especially since the 2015 Paris Agreement. Carbon-intensive sectors like Electricity, Gas, and Mining face heightened transition risk pricing. Interestingly, the market may undervalue a company’s transition risk management efforts and participation in the EU ETS, possibly due to market inefficiencies. Predicting allowance prices’ impact on financial performance in the EU ETS market is notably challenging due to unique supply–demand dynamics.
期刊介绍：
Energy Economics is a field journal that focuses on energy economics and energy finance. It covers various themes including the exploitation, conversion, and use of energy, markets for energy commodities and derivatives, regulation and taxation, forecasting, environment and climate, international trade, development, and monetary policy. The journal welcomes contributions that utilize diverse methods such as experiments, surveys, econometrics, decomposition, simulation models, equilibrium models, optimization models, and analytical models. It publishes a combination of papers employing different methods to explore a wide range of topics. The journal's replication policy encourages the submission of replication studies, wherein researchers reproduce and extend the key results of original studies while explaining any differences. Energy Economics is indexed and abstracted in several databases including Environmental Abstracts, Fuel and Energy Abstracts, Social Sciences Citation Index, GEOBASE, Social & Behavioral Sciences, Journal of Economic Literature, INSPEC, and more.
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