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Working Paper
Measuring Climate Transition Risk at the Regional Level with an Application to Community Banks
We develop a measure of climate transition risk for regional economies in the U.S., based on the mix of firms that produce emissions in each region. To quantify transition risks, we consider the introduction of an emissions tax levied on companies emitting greenhouse gases and estimate changes in the market values of industries due to a carbon tax using Merton’s (1974) model. We find that transition risks are highly concentrated in a few sectors and counties with heavy exposures to transition-sensitive sectors. The size and geographic concentration of the tax effects depend significantly on ...