Does carbon capture & storage mitigate carbon premium? Evidence from patents

Abstract Motivated by recent evidence of a carbon risk premium Bolton and Kacperczyk (2021, J. Financ. Econ., 142, 517549), we analyze firm-level patenting in Carbon Capture Utilization & Storage (CCUS) technologies and its impact on stock market performance from 2010 to 2022. Using zero-inflated Poisson regressions on patent and financial data and CO2 emissions, we find CCUS patents respond to CO2 emissions and climate policies. Moreover, although CCUS patents are negatively (positively) related to market-to-book (stock returns), we find that the effect turns if the firm is a high CO2 emitter and environmental regulation is tighter. Our findings suggest that CCUS innovation reduces the carbon risk premium, benefiting firms with higher environmental risks.