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Does EU emissions trading bite? An event study

Author

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  • Jong, Thijs
  • Couwenberg, Oscar
  • Woerdman, Edwin

Abstract

The aim of this paper is to examine whether shareholders consider the EU Emissions Trading Scheme (EU ETS) as value-relevant for the participating firms. An analysis is conducted of the share prices changes as caused by the first publication of compliance data in April, 2006, which disclosed an over-allocation of emission allowances. Through an event study, it is shown that share prices actually increased as a result of the allowance price drop when firms have a lower carbon-intensity of production and larger allowance holdings. There was no significant value impact from firms׳ allowance trade activity or from the pass-through of carbon-related production costs (carbon leakage). The conclusion is that the EU ETS does ‘bite’. The main impact on the share prices of firms arises from their carbon-intensity of production. The EU ETS is thus valued as a restriction on pollution.

Suggested Citation

  • Jong, Thijs & Couwenberg, Oscar & Woerdman, Edwin, 2014. "Does EU emissions trading bite? An event study," Energy Policy, Elsevier, vol. 69(C), pages 510-519.
  • Handle: RePEc:eee:enepol:v:69:y:2014:i:c:p:510-519
    DOI: 10.1016/j.enpol.2014.03.007
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    References listed on IDEAS

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    Cited by:

    1. Brouwers, Roel & Schoubben, Frederiek & Van Hulle, Cynthia & Van Uytbergen, Steve, 2016. "The initial impact of EU ETS verification events on stock prices," Energy Policy, Elsevier, vol. 94(C), pages 138-149.
    2. repec:gam:jsusta:v:10:y:2018:i:9:p:3328-:d:170471 is not listed on IDEAS
    3. Shihong Zeng & Yan Xu & Liming Wang & Jiuying Chen & Qirong Li, 2016. "Forecasting the Allocative Efficiency of Carbon Emission Allowance Financial Assets in China at the Provincial Level in 2020," Energies, MDPI, Open Access Journal, vol. 9(5), pages 1-18, May.
    4. repec:eee:energy:v:164:y:2018:i:c:p:803-810 is not listed on IDEAS
    5. repec:gam:jsusta:v:9:y:2017:i:11:p:2122-:d:119248 is not listed on IDEAS
    6. repec:gam:jeners:v:9:y:2016:i:5:p:329:d:69380 is not listed on IDEAS
    7. Oestreich, A. Marcel & Tsiakas, Ilias, 2015. "Carbon emissions and stock returns: Evidence from the EU Emissions Trading Scheme," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 294-308.
    8. Zhang, Yue-Jun & Peng, Yu-Lu & Ma, Chao-Qun & Shen, Bo, 2017. "Can environmental innovation facilitate carbon emissions reduction? Evidence from China," Energy Policy, Elsevier, vol. 100(C), pages 18-28.
    9. Wei Jiang & Jia Liu & Xiang Liu, 2016. "Impact of Carbon Quota Allocation Mechanism on Emissions Trading: An Agent-Based Simulation," Sustainability, MDPI, Open Access Journal, vol. 8(8), pages 1-13, August.

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