Market Effects of Voluntary Climate Action by Firms: Evidence from the Chicago Climate Exchange
AbstractWhy do for-profit firms take voluntary steps to improve the environment? Brand appeal to green consumers or investors, the ability to influence or avoid regulation, or the experience gained for future regulation, have all been suggested as possible reasons. The empirical evidence is decidedly mixed. This paper uses 19 years of monthly stock price returns to examine the profitability of participation in the world’s largest voluntary greenhouse gas mitigation program: the Chicago Climate Exchange. After controlling for systemic market risk as well as industry-specific shocks, we find no statistically significant impact of announcing to join CCX on excess returns. However, the market appeared to be sensitive to changes in abatement costs implied by CCX membership. Most strikingly, the progress of proposed greenhouse gas legislation (the Waxman-Markey bill) had a positive impact on excess returns for CCX member firms, suggesting that the most profitable incentive for firms to join CCX is to prepare for future regulation. Our results imply that relying on voluntary approaches alone to combat climate change may not be enough.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3445.
Date of creation: 2011
Date of revision:
voluntary action; firm performance; climate change; permit markets;
Other versions of this item:
- Will Gans & Beat Hintermann, 2013. "Market Effects of Voluntary Climate Action by Firms: Evidence from the Chicago Climate Exchange," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 55(2), pages 291-308, June.
- Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
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