Does EU emissions trading bite? An event study

Thijs Jong, Oscar Couwenberg and Edwin Woerdman

Energy Policy, 2014, vol. 69, issue C, 510-519

Abstract: The aim of this paper is to examine whether shareholders consider the EU Emissions Trading Scheme (EU ETS) as value-relevant for the participating firms. An analysis is conducted of the share prices changes as caused by the first publication of compliance data in April, 2006, which disclosed an over-allocation of emission allowances. Through an event study, it is shown that share prices actually increased as a result of the allowance price drop when firms have a lower carbon-intensity of production and larger allowance holdings. There was no significant value impact from firms׳ allowance trade activity or from the pass-through of carbon-related production costs (carbon leakage). The conclusion is that the EU ETS does ‘bite’. The main impact on the share prices of firms arises from their carbon-intensity of production. The EU ETS is thus valued as a restriction on pollution.

Keywords: EU ETS; Allowance transactions; Carbon trading; Over-allocation; Event study (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (29)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:69:y:2014:i:c:p:510-519

DOI: 10.1016/j.enpol.2014.03.007

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