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American Economic Journal: Economic Policy: Vol. 5 No. 4 (November 2013)

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Profiting from Regulation: Evidence from the European Carbon Market

Article Citation

Bushnell, James B., Howard Chong, and Erin T. Mansur. 2013. "Profiting from Regulation: Evidence from the European Carbon Market." American Economic Journal: Economic Policy, 5(4): 78-106.

DOI: 10.1257/pol.5.4.78

Abstract

We investigate how cap-and-trade regulation affects profits. In late April 2006, the EU CO2 allowance price dropped 50 percent, equating to a €28 billion reduction in the value of aggregate annual allowances. We examine daily returns for 552 stocks from the EUROSTOXX index. Despite reductions in environmental costs, we find that stock prices fell for firms in both carbon- and electricity-intensive industries, particularly for firms selling primarily within the EU. Our results imply that investors focus on product price impacts, rather than just compliance costs and the nominal value of pollution permits.

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Authors

Bushnell, James B. (U CA, Davis)
Chong, Howard (Cornell U)
Mansur, Erin T. (Dartmouth College)

JEL Classifications

G12: Asset Pricing; Trading Volume; Bond Interest Rates
G14: Information and Market Efficiency; Event Studies; Insider Trading
L94: Electric Utilities
Q53: Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
Q54: Climate; Natural Disasters; Global Warming
Q58: Environmental Economics: Government Policy

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