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<p>This paper examines the relationship between the financial costs associated with carbon emissions and the intensity of green revenues relative to emissions and firm-level default risk. Contributing to the ongoing debate on emissions measurement approaches, we construct two novel intensity measures that capture the monetary value of emissions: average carbon cost (Cost/GHG) and green-revenue intensity (GR/GHG). Using global firm-level data from 2008 to 2022, we find that exposure to carbon costs is strongly associated with increased default risk, while the evidence for green-revenue intensity is more modest and does not translate into a clear reduction in market-implied default probabilities. On average, a $1,000 increase in carbon cost per tonne of emissions is associated with a 0.70 percentage point rise in the probability of default and a reduction in Distance-to-Default, and these relationships remain robust when absorbing time-varying industry cycles and country-level macro and policy conditions. The association between carbon-cost exposure and default risk is most pronounced in high transition-risk sectors and is weaker in firms with higher managerial ability and operational efficiency. Overall, the results highlight the importance of incorporating monetary valuations of transition exposures when assessing climate-related credit risk.</p>

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The cost and benefit of GHG emissions and default risk

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2026年5月7日

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  • Anthony Ede,
  • Panagiotis Tzouvanas

摘要

This paper examines the relationship between the financial costs associated with carbon emissions and the intensity of green revenues relative to emissions and firm-level default risk. Contributing to the ongoing debate on emissions measurement approaches, we construct two novel intensity measures that capture the monetary value of emissions: average carbon cost (Cost/GHG) and green-revenue intensity (GR/GHG). Using global firm-level data from 2008 to 2022, we find that exposure to carbon costs is strongly associated with increased default risk, while the evidence for green-revenue intensity is more modest and does not translate into a clear reduction in market-implied default probabilities. On average, a $1,000 increase in carbon cost per tonne of emissions is associated with a 0.70 percentage point rise in the probability of default and a reduction in Distance-to-Default, and these relationships remain robust when absorbing time-varying industry cycles and country-level macro and policy conditions. The association between carbon-cost exposure and default risk is most pronounced in high transition-risk sectors and is weaker in firms with higher managerial ability and operational efficiency. Overall, the results highlight the importance of incorporating monetary valuations of transition exposures when assessing climate-related credit risk.