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Profiting from Regulation: Evidence from the European Carbon Market

Author

Listed:
  • James B. Bushnell
  • Howard Chong
  • Erin T. Mansur

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.

Suggested Citation

  • James B. Bushnell & Howard Chong & Erin T. Mansur, 2013. "Profiting from Regulation: Evidence from the European Carbon Market," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 78-106, November.
    • Handle: RePEc:aea:aejpol:v:5:y:2013:i:4:p:78-106
    Note: DOI: 10.1257/pol.5.4.78
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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • 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 and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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    1. Profiting from Regulation: Evidence from the European Carbon Market (American Economic Journal: Economic Policy 2013) in ReplicationWiki

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