Document Type

Article

Publication Date

11-2013

Publication Title

American Economic Journal - Economic Policy

Department

Department of Economics

Abstract

We investigate how cap-and-trade regulation affects profits. In late April 2006, the EU CO2 allowance price dropped 50 percent, equating to a €28 billion reduction in the value of aggregate annual allowances. We examine daily returns for 552 stocks from the EUROSTOXX index. Despite reductions in environmental costs, we find that stock prices fell for firms in both carbon- and electricity-intensive industries, particularly for firms selling primarily within the EU. Our results imply that investors focus on product price impacts, rather than just compliance costs and the nominal value of pollution permits.

DOI

10.1257/pol.5.4.78

Original Citation

Bushnell, James B., Howard Chong, and Erin T. Mansur. 2013. "Profiting from Regulation: Evidence from the European Carbon Market." American Economic Journal: Economic Policy, 5 (4): 78-106. DOI: 10.1257/pol.5.4.78

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