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The effect of cap-and-trade programs on firms' profits: Evidence from the Nitrogen Oxides Budget Trading Program

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  • Linn, Joshua

Abstract

Cap-and-trade programs have become an increasingly common means of regulating emissions from electric power plants, but there is little empirical evidence about the programs' effects on regulated firms' profits. This paper uses stock prices to estimate the change in expected profits under the Nitrogen Oxides Budget Trading Program (NBP). Using regional variation in compliance costs, I find that the NBP reduced expected profits by as much as $25 billion, primarily affecting the values of coal generators that operate in states with restructured electricity markets.

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  • Linn, Joshua, 2010. "The effect of cap-and-trade programs on firms' profits: Evidence from the Nitrogen Oxides Budget Trading Program," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 1-14, January.
    • Handle: RePEc:eee:jeeman:v:59:y:2010:i:1:p:1-14
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    10. Kyle C. Meng, 2017. "Using a Free Permit Rule to Forecast the Marginal Abatement Cost of Proposed Climate Policy," American Economic Review, American Economic Association, vol. 107(3), pages 748-784, March.
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