TY - JOUR T1 - Carbon-Tax-Adjusted Value JF - The Journal of Portfolio Management DO - 10.3905/jpm.2022.1.343 SP - jpm.2022.1.343 AU - David Blitz AU - Tobias Hoogteijling Y1 - 2021/02/15 UR - https://pm-research.com/content/early/2022/02/15/jpm.2022.1.343.abstract N2 - The authors examine the effects of incorporating a potential tax on carbon emissions into a value investment strategy. They show that in a portfolio optimization problem, a carbon tax at the stock level is mathematically equivalent to a carbon constraint at the portfolio level. Using this insight, the authors derive a value–carbon efficient frontier that reflects the trade-off between a high value exposure and a low carbon footprint. Empirically, they find that carbon taxes up to $100, corresponding to a portfolio carbon footprint reduction of about 50%, have little effect on the characteristics and performance of the long side of a value strategy. More aggressive footprint reduction targets require progressively higher, less realistic carbon tax levels that do erode the magnitude of the value premium. ER -