Profiting from Regulation: Evidence from the European Carbon Market

James Bushnell, Howard Chong () and Erin Mansur

American Economic Journal: Economic Policy, 2013, vol. 5, issue 4, 78-106

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.

JEL-codes: G12 G14 L94 Q53 Q54 Q58 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/pol.5.4.78
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Citations: View citations in EconPapers (99)

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