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

Motivated by recent evidence of a carbon risk premium (Bolton and Kacperczyc, 2021), we analyze firm-level patenting in Carbon Capture Utilization and Storage (CCUS) technologies and its impact on stock market performance from 2010 to 2022. Using zeroinflated 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 with 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.