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

  • Linn, Joshua

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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File URL: http://www.sciencedirect.com/science/article/pii/S0095-0696(09)00062-X
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Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 59 (2010)
Issue (Month): 1 (January)
Pages: 1-14

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Handle: RePEc:eee:jeeman:v:59:y:2010:i:1:p:1-14
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622870

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  1. Ian Lange & Josh Linn, 2006. "Bush v. Gore and the Effect of New Source Review on Power Plant Emissions," Working Papers UWEC-2007-02, University of Washington, Department of Economics.
  2. Paul Oyer, . "Mandated Disclosure, Stock Returns, and the 1964 Securities Acts Amendments," American Law & Economics Association Annual Meetings 1019, American Law & Economics Association.
  3. Erin T. Mansur, 2007. "DO OLIGOPOLISTS POLLUTE LESS? EVIDENCE FROM A RESTRUCTURED ELECTRICITY MARKET -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 55(4), pages 661-689, December.
  4. Burtraw, Dallas & Palmer, Karen & Bharvirkar, Ranjit & Paul, Anthony, 2001. "Restructuring and Cost of Reducing NOx Emissions in Electricity Generation," Discussion Papers dp-01-10-rev, Resources For the Future.
  5. Farrell, Alex, 2000. "The NOx Budget: A Look at the First Year," The Electricity Journal, Elsevier, vol. 13(2), pages 83-93, March.
  6. Burtraw, Dallas & Palmer, Karen & Cropper, Maureen & Carlson, Curtis, 1998. "Sulfur-Dioxide Control By Electric Utilities: What Are the Gains from Trade?," Discussion Papers dp-98-44-rev, Resources For the Future.
  7. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
  8. Joshua Linn, 2008. "Technological Modifications in the Nitrogen Oxides Tradable Permit Program," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 153-176.
  9. Severin Borenstein & James B. Bushnell & Frank A. Wolak, 2002. "Measuring Market Inefficiencies in California's Restructured Wholesale Electricity Market," American Economic Review, American Economic Association, vol. 92(5), pages 1376-1405, December.
  10. Salinger, Michael, 1992. "Standard Errors in Event Studies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(01), pages 39-53, March.
  11. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
  12. Mitchell, Mark L & Stafford, Erik, 2000. "Managerial Decisions and Long-Term Stock Price Performance," The Journal of Business, University of Chicago Press, vol. 73(3), pages 287-329, July.
  13. Kira R. Fabrizio & Nancy L. Rose & Catherine D. Wolfram, 2007. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency," American Economic Review, American Economic Association, vol. 97(4), pages 1250-1277, September.
  14. Ellison, Sara Fisher & Mullin, Wallace P, 2001. "Gradual Incorporation of Information: Pharmaceutical Stocks and the Evolution of President Clinton's Health Care Reform," Journal of Law and Economics, University of Chicago Press, vol. 44(1), pages 89-129, April.
  15. Erin T. Mansur, 2007. "Do Oligopolists Pollute Less? Evidence from a Restructured Electricity Market," NBER Working Papers 13511, National Bureau of Economic Research, Inc.
  16. Krupnick, Alan & McConnell, Virginia & Stoessell, Terrell & Cannon, Matthew & Batz, Michael, 2000. "Cost-Effective NOx Control in the Eastern United States," Discussion Papers dp-00-18, Resources For the Future.
  17. Boehmer, Ekkehart & Masumeci, Jim & Poulsen, Annette B., 1991. "Event-study methodology under conditions of event-induced variance," Journal of Financial Economics, Elsevier, vol. 30(2), pages 253-272, December.
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