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Profiting from Regulation: An Event Study of the EU Carbon Market

  • Bushnell, James
  • Mansur, Erin T.
  • Chong, Howard G.

We investigate the effect of cap-and-trade regulation of CO2 on firm profits by performing an event study of a CO2 price crash in the EU market. We examine returns for 90 stocks from carbon intensive industries and 600 stocks in the broad EUROSTOXX index. Firms in carbon intensive, or electricity intensive industries, but not involved in international trade were most hurt by the event. This implies investors were focused on product price impacts, rather than compliance costs. We find evidence that firms' net allowance positions also strongly influenced the share price response to the decline in allowance prices.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers Archive with number 32737.

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Date of creation: 15 Dec 2010
Date of revision:
Handle: RePEc:isu:genres:32737
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Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070

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  8. Linn, Joshua, 2010. "The effect of cap-and-trade programs on firms' profits: Evidence from the Nitrogen Oxides Budget Trading Program," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 1-14, January.
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  15. Goulder, Lawrence H. & Hafstead, Marc A.C. & Dworsky, Michael, 2010. "Impacts of alternative emissions allowance allocation methods under a federal cap-and-trade program," Journal of Environmental Economics and Management, Elsevier, vol. 60(3), pages 161-181, November.
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