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Climate transition risk and industry returns: The impact of green innovation and carbon market uncertainty

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  • Zhou, Qi
  • Ni, Jiajun
  • Yang, Cunyi

Abstract

This study explores how climate transition risk, green innovation, and carbon market uncertainty influence industry returns in economic cycles, providing crucial insights for industry-level low-carbon transition pathways. Utilizing an input-output (IO) life-cycle assessment model, we measure the total carbon emissions and carbon intensity of 28 industries in China from 2002 to 2020, distinguishing between direct and indirect emissions. We investigate the risk premium associated with transition risk and industry returns and analyze the moderating effects of physical risk, carbon market uncertainty, and green innovation. Our findings indicate that higher transition risk correlates with lower industry returns, with physical risk exacerbating this negative impact, while carbon market uncertainty and green innovations mitigate it. The heterogeneity analysis reveals that direct carbon emissions primarily drive the negative premium. Notably, the adverse effect of transition risk on industry returns has diminished since the Paris Agreement and is more evident in industries with lower concentration levels and higher centrality degree. This research offers new evidence on the interplay between climate transition risk and economic cycles, emphasizing the role of green finance and technological innovation in forecasting and navigating future economic developments.

Suggested Citation

  • Zhou, Qi & Ni, Jiajun & Yang, Cunyi, 2025. "Climate transition risk and industry returns: The impact of green innovation and carbon market uncertainty," Technological Forecasting and Social Change, Elsevier, vol. 214(C).
    • Handle: RePEc:eee:tefoso:v:214:y:2025:i:c:s0040162525000873
    DOI: 10.1016/j.techfore.2025.124056
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    Keywords

    Climate transition risk; Economic cycles; Green innovation; Carbon market uncertainty; Physical risk; Industry returns; Low-carbon transition; Green finance;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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