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Profiting from Regulation: An Event Study of the EU Carbon Market

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  • Bushnell, James
  • Mansur, Erin T.
  • Chong, Howard G.

Abstract

We investigate the effect of cap-and-trade regulation of CO2 on firm profits by performing an event study of a CO2 price crash in the EU market. We examine returns for 90 stocks from carbon intensive industries and 600 stocks in the broad EUROSTOXX index. Firms in carbon intensive, or electricity intensive industries, but not involved in international trade were most hurt by the event. �This implies investors were focused on product price impacts, rather than compliance costs. We find evidence that firms’ net allowance positions also strongly influenced the share price response to the decline in allowance prices.

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File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p12737-2011-04-06.pdf
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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 32737.

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Date of creation: 15 Dec 2010
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Handle: RePEc:isu:genres:32737

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Keywords: Emissions Markets; Incidence of Taxation; Event Study;

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Cited by:
  1. Holland, Stephen P. & Moore, Michael R., 2013. "Market design in cap and trade programs: Permit validity and compliance timing," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 671-687.
  2. Stocking, Andrew, 2010. "Unintended Consequences of Price Controls: An Application to Allowance Markets," MPRA Paper 25559, University Library of Munich, Germany.
  3. Justin Marion & Erich Muehlegger, 2011. "Fuel Tax Incidence and Supply Conditions," NBER Working Papers 16863, National Bureau of Economic Research, Inc.
  4. Managi, Shunsuke & Okimoto, Tatsuyoshi, 2013. "Does the price of oil interact with clean energy prices in the stock market?," Japan and the World Economy, Elsevier, Elsevier, vol. 27(C), pages 1-9.

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