TY - JOUR T1 - Carbon-Tax-Adjusted Value JF - The Journal of Portfolio Management SP - 121 LP - 137 DO - 10.3905/jpm.2022.1.343 VL - 48 IS - 5 AU - David Blitz AU - Tobias Hoogteijling Y1 - 2022/03/31 UR - https://pm-research.com/content/48/5/121.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 -