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Voluntary Corporate Climate Initiatives and Regulatory Loom: Batten Down the Hatches

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  • Ilić, Dragan
  • Mollet, Janick Christian

Abstract

The rationale of voluntary corporate initiatives is often explained with preparedness for future regulation. We test this hypothesis for the Chicago Climate Exchange (CCX) and the Climate Leaders (CL), two popular voluntary US environmental programs to curb carbon emission that were operating during a decisive regulatory event. In 2009 the Waxman-Markey Bill surprisingly passed the House of Representativesand brought the US economy on the brink of a nationwide CO2 emission trading system. In an event study we assess how the stock market adjusted prices when the likelihood of CO2 regulation suddenly increased. Our results suggest that only membership in the CCX was considered beneficial, an initiative whose design happened to dovetail with the bill. Earlier membership announcement effects paint a complementary picture. But membership alone cannot account for the entire price adjustments. Our results reveal that a substantial part of the market reaction consisted of industry-wide effects.

Suggested Citation

  • Ilić, Dragan & Mollet, Janick Christian, 2015. "Voluntary Corporate Climate Initiatives and Regulatory Loom: Batten Down the Hatches," Working papers 2015/06, Faculty of Business and Economics - University of Basel.
  • Handle: RePEc:bsl:wpaper:2015/06
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    References listed on IDEAS

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    Keywords

    voluntary markets ; permit markets ; climate change ; greenhouse gas emissions ; CO2 ; corporate social responsibility ; shareholder wealth;

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • 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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