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Carbon Pricing and Capital Reallocation: A Comparative Case Study of Global Emissions Trading Systems and Financial Markets

Carbon Pricing and Capital Reallocation: A Comparative Case Study of Global Emissions Trading Systems and Financial Markets
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Author(s): K. Balaji (CHRIST University, Bengaluru, India)
Copyright: 2026
Pages: 34
Source title: The Ripple Effects of Environmental Policies: Economic, Financial, and Institutional Perspectives
Source Author(s)/Editor(s): Mohieddine Rahmouni (King Faisal University, Saudi Arabia)
DOI: 10.4018/979-8-3373-8998-1.ch003

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Abstract

Carbon pricing has emerged as a central policy instrument for aligning financial markets with climate objectives. Emissions trading systems (ETS) increasingly act not only as environmental tools but also as powerful financial signals shaping global investment behavior. This chapter investigates how carbon pricing mechanisms influence capital reallocation in global financial markets through a comparative case study of major emissions trading systems, including the European Union Emissions Trading System (EU ETS), China's National ETS, and the California Cap-and-Trade Program. Methodologically, the chapter adopts a mixed-methods case study design integrating quantitative financial market analysis with institutional and policy review. Secondary data are drawn from carbon allowance markets, stock exchanges, sectoral investment flows, and ESG disclosures. The findings indicate that higher and more credible carbon prices are associated with a systematic reallocation of capital away from carbon-intensive assets toward renewable energy, clean technology, and low-carbon infrastructure.

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