%0 Journal Article %A David Blitz %A Tobias Hoogteijling %T Carbon-Tax-Adjusted Value %D 2022 %R 10.3905/jpm.2022.1.343 %J The Journal of Portfolio Management %P 121-137 %V 48 %N 5 %X 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. %U https://jpm.pm-research.com/content/iijpormgmt/48/5/121.full.pdf