Does the stock market care about the carbon price?

Consumer price inflation, government bond yields, exchange rates, commodity prices, freight rates….

The list of prices which investors must factor into their valuation of various asset prices is significant, volatile and prone to substantial uncertainty.

To that list of prices, investors are increasingly adding the price of carbon.

Almost one-quarter of global emissions are covered by some sort of carbon pricing (either via an emissions trading scheme or a carbon tax). As the prevalence of carbon pricing rises and the value of emissions increases over time, investors will have to factor in the cost of emission allowances into their valuation models (see "Don't touch my carbon revenue!").

To understand what the future could hold, we first need to understand how the stock market has been incorporating developments in the carbon price up until recently.