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The Impact of the Clean Air Act Amendments of 1990 on Electric Utilitiesand Coal Mines: Evidence from the Stock Market

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Author Info

  • Christopher Knittel
  • Shulamit Kahn

    (Department of Economics, University of California Davis)

Abstract

If new environmental regulation imposes significant costs on firms, it should be detected in their stock prices. We use event study methodology to analyze whether President George H. Bush’s Clean Air Act Amendment (CAAA) proposals of June 1989, which were quite different from what had been expected, depressed stock prices in affected electricity generating and coal mining companies. We find that shares of 35 electric generating companies owning Phase I power plants did not noticeably fall in value after the Bush June 1989 announcement, nor after three other possibly relevant events during the preceding year. In fact, these shares increased in value during June and July of 1989. In contrast, stock prices of 11 of the 12 coal mining companies fell after Bush announced his proposals, while stock prices of a large majority of these coal companies fell after two of the other three events (although significance levels make these results not entirely conclusive). We argue that expected profits of electric generating companies did not fall because the regulated price of electricity was typically allowed to increase with costs. In the electricity industry, the costs of the CAAA were expected to be borne entirely by consumers in the form of higher prices.

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Bibliographic Info

Paper provided by University of California, Davis, Department of Economics in its series Working Papers with number 528.

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Length: 30
Date of creation: 02 Jun 2002
Date of revision:
Handle: RePEc:cda:wpaper:05-28

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Keywords: clean air; electric;

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References

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  1. Wayne B. Gray & Ronald J. Shadbegian, 1997. "Environmental Regulation, Investment Timing, and Technology Choice," NBER Working Papers 6036, National Bureau of Economic Research, Inc.
  2. Randy Becker & Vernon Henderson, 2000. "Effects of Air Quality Regulations on Polluting Industries," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 379-421, April.
  3. Randy A Becker & Vernon Henderson, 1999. "Costs of Air Quality Regulation," Working Papers 99-9, Center for Economic Studies, U.S. Census Bureau.
    • Randy A. Becker & J. Vernon Henderson, 2001. "Costs of Air Quality Regulation," NBER Chapters, in: Behavioral and Distributional Effects of Environmental Policy, pages 159-186 National Bureau of Economic Research, Inc.
  4. List, John A. & Co, Catherine Y., 2000. "The Effects of Environmental Regulations on Foreign Direct Investment," Journal of Environmental Economics and Management, Elsevier, vol. 40(1), pages 1-20, July.
  5. John J. Binder, 1985. "Measuring the Effects of Regulation with Stock Price Data," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 167-183, Summer.
  6. Eli Berman & Linda T.M. Bui, 1998. "Environmental Regulation and Productivity: Evidence from Oil Refineries," Papers 0091, Boston University - Industry Studies Programme.
  7. Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2005. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521023894, October.
    • Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2000. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521660839, October.
  8. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
  9. Adam B. Jaffe & Karen Palmer, 1996. "Environmental Regulation and Innovation: A Panel Data Study," NBER Working Papers 5545, National Bureau of Economic Research, Inc.
  10. Boyd, Gale A. & McClelland, John D., 1999. "The Impact of Environmental Constraints on Productivity Improvement in Integrated Paper Plants," Journal of Environmental Economics and Management, Elsevier, vol. 38(2), pages 121-142, September.
  11. Khanna, Madhu & Quimio, Wilma Rose H. & Bojilova, Dora, 1998. "Toxics Release Information: A Policy Tool for Environmental Protection," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 243-266, November.
  12. Erik Biørn & Rolf Golombek* & Arvid Raknerud, 1998. "Environmental Regulations and Plant Exit," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 11(1), pages 35-59, January.
  13. Richard K. Harper & Stephen C. Adams, 1996. "Cercla And Deep Pockets: Market Response To The Superfund Program," Contemporary Economic Policy, Western Economic Association International, vol. 14(1), pages 107-115, 01.
  14. Dean, Thomas J. & Brown, Robert L. & Stango, Victor, 2000. "Environmental Regulation as a Barrier to the Formation of Small Manufacturing Establishments: A Longitudinal Examination," Journal of Environmental Economics and Management, Elsevier, vol. 40(1), pages 56-75, July.
  15. Salinger, Michael, 1992. "Standard Errors in Event Studies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(01), pages 39-53, March.
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