Abstract
<title>Abstract</title> <p>This paper develops a dynamic carbon-budget Black--Litterman framework for equity investors exposed to emissions-trading-system transition risk. The empirical design separates operating carbon-market evidence from emerging-market portfolio construction. EU and UK data are used as historical learning cases because listed firms in those jurisdictions face established allowance-market institutions; Thailand is treated as a pre-ETS application because investors observe firm-level carbon characteristics and international carbon prices before a liquid domestic allowance contract exists. The proposed rule combines market-implied Black--Litterman priors, carbon-transition views, a state-dependent carbon-intensity budget, and a capped EUA futures sleeve used only as an external transition-risk signal and hedge. The EU and UK results show that carbon-price stress is financially relevant but heterogeneous across jurisdictions and states, supporting a risk-budgeting interpretation rather than a mechanical exclusion rule. In the Thai current-investable-universe historical backtest, the strategy improves transition-risk control relative to standard and screened Black--Litterman portfolios by lowering financed carbon intensity and strengthening performance in carbon-tightening states. Market-calibrated stress tests further show that the same protection can be costly when carbon policy relaxes or the external carbon instrument sells off. The method is therefore best interpreted as a transparent transition-risk-control overlay for pre-ETS investors, not as evidence of unconditional alpha or as a claim that Thailand already has a domestic allowance market.</p>