Energy Transition and Climate Policy Uncertainty in the US: Green Versus Polluting Firms

This paper applies a fractional integration framework to investigate the behaviour of the stock returns of two sets of representative US companies with different environmental profiles, namely green versus polluting firms, as well as of the widely used CPU (Climate Policy Uncertainty) index over the period from January 2017 to March 2025. This time span includes the first Trump administration and the following Biden one, with very different attitudes towards the environment. The analysis suggests that (i) the financial performance of stock returns of polluting companies was generally worse under the Biden administration, whilst there was no significant positive impact on green companies, as implied by the estimated time trend coefficients: (ii) the effects of shocks tend to fade away more quickly in both types of companies under the Biden administration, as implied by the estimates of the differencing parameter, though only in two cases they eventually vanish. Finally, CPU appears to have been decreasing under the Biden administration, whilst the effects of shocks seem to be transitory in both periods. On the whole, the Biden policies to combat climate changes appear to have reduced climate uncertainty and to have led to a better financial performance of environmentally friendly companies. Their reversal could have damaging effects on the environment.