[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/p/isu/genres/13139.html
   My bibliography  Save this paper

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

Author

Listed:
  • Bushnell, James
  • Chong, Howard G.
  • Mansur, Erin T.
Abstract
Tradable permit regulations have recently been implemented for climate change policy in many countries. One of the first mandatory markets was the EU Emission Trading System, whose first phase ran from 2005-07. Unlike taxes, permits expose firms to volatility in regulatory costs, but are typically accompanied by property rights in the form of grandfathered permits. In this paper, we examine the effect of this type of environmental regulation on profits. In particular, changes in permit prices affect: (1) the direct and indirect input costs, (2) output revenue, and (3) the carbon permit asset value. Depending on abatement costs, output price sensitivity, and permit allocation, these effects may vary considerably across industries and firms. We run an event study of the carbon price crash on April 25, 2006 by examining the daily stock returns for 90 stocks from carbon intensive industries and approximately 600 stocks in the broad EUROSTOXX index. In general, firms in industries that tended to be either carbon intensive, or electricity intensive, but not involved in international trade, were hurt by the decline in permit prices. In industries that were known to be net short of permits, the cleanest firms saw the largest declines in share value. In industries known to be long in permits, firms granted the largest allocations were most harmed.

Suggested Citation

  • Bushnell, James & Chong, Howard G. & Mansur, Erin T., 2009. "Profiting from Regulation: An Event Study of the EU Carbon Market," Staff General Research Papers Archive 13139, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:13139
    as

    Download full text from publisher

    File URL: http://www2.econ.iastate.edu/papers/paper_13139.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Randy Becker & Vernon Henderson, 2000. "Effects of Air Quality Regulations on Polluting Industries," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 379-421, April.
    2. John A. List & Daniel L. Millimet & Per G. Fredriksson & W. Warren McHone, 2003. "Effects of Environmental Regulations on Manufacturing Plant Births: Evidence from a Propensity Score Matching Estimator," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 944-952, November.
    3. 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.
    4. Stefan P. Schleicher & Claudia Kettner & Angela Köppl & Gregor Thenius, 2007. "Stringency and Distribution in the EU Emissions Trading Scheme –The 2005 Evidence," Working Papers 2007.22, Fondazione Eni Enrico Mattei.
    5. Jos Sijm & Karsten Neuhoff & Yihsu Chen, 2006. "CO 2 cost pass-through and windfall profits in the power sector," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 49-72, January.
    6. 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.
    7. Dallas Burtraw & Karen Palmer, 2008. "Compensation rules for climate policy in the electricity sector," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 27(4), pages 819-847.
    8. Seade, J., 1985. "Profitable Cost Increases and the Shifting of Taxation: Equilibrium Responses of Markets in Oligopoly," Economic Research Papers 269225, University of Warwick - Department of Economics.
    9. Michael Greenstone, 2002. "The Impacts of Environmental Regulations on Industrial Activity: Evidence from the 1970 and 1977 Clean Air Act Amendments and the Census of Manufactures," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1175-1219, December.
    10. repec:bla:jindec:v:46:y:1998:i:2:p:235-56 is not listed on IDEAS
    11. List John A. & Millimet Daniel L & McHone Warren, 2004. "The Unintended Disincentive in the Clean Air Act," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(2), pages 1-28, February.
    12. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    13. Seade, J, 1985. "Profitable Cost Increases and the Shifting of Taxation : Equilibrium Response of Markets in Oligopoly," The Warwick Economics Research Paper Series (TWERPS) 260, University of Warwick, Department of Economics.
    14. Oberndorfer, Ulrich, 2009. "EU Emission Allowances and the stock market: Evidence from the electricity industry," Ecological Economics, Elsevier, vol. 68(4), pages 1116-1126, February.
    15. Christopher Knittel & Shulamit Kahn, 2002. "The Impact of the Clean Air Act Amendments of 1990 on Electric Utilitiesand Coal Mines: Evidence from the Stock Market," Working Papers 528, University of California, Davis, Department of Economics.
    16. A. Lans Bovenberg & Lawrence H. Goulder, 2001. "Neutralizing the Adverse Industry Impacts of CO2 Abatement Policies: What Does It Cost?," NBER Chapters, in: Behavioral and Distributional Effects of Environmental Policy, pages 45-90, National Bureau of Economic Research, Inc.
    17. Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2005. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521023894, September.
      • Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2000. "Markets for Clean Air," Cambridge Books, Cambridge University Press, number 9780521660839.
    18. Gray, Wayne B, 1987. "The Cost of Regulation: OSHA, EPA and the Productivity Slowdown," American Economic Review, American Economic Association, vol. 77(5), pages 998-1006, December.
    19. Regina Betz & Wolfgang Eichhammer & Joachim Schleich, 2004. "Designing National Allocation Plans for Eu-Emissions Trading — A First Analysis of the Outcomes," Energy & Environment, , vol. 15(3), pages 375-425, July.
    20. Christopher Knittel & Shulamit Kahn, 2002. "The Impact of the Clean Air Act Amendments of 1990 on Electric Utilitiesand Coal Mines: Evidence from the Stock Market," Working Papers 293, University of California, Davis, Department of Economics.
    21. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
    22. Puller, Steven L., 2006. "The strategic use of innovation to influence regulatory standards," Journal of Environmental Economics and Management, Elsevier, vol. 52(3), pages 690-706, November.
    23. Claudia Kettner & Angela Köppl & Stefan P. Schleicher & Gregor Thenius, 2008. "Stringency and distribution in the EU Emissions Trading Scheme: first evidence," Climate Policy, Taylor & Francis Journals, vol. 8(1), pages 41-61, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marion, Justin & Muehlegger, Erich, 2011. "Fuel tax incidence and supply conditions," Journal of Public Economics, Elsevier, vol. 95(9-10), pages 1202-1212, October.
    2. Holland, Stephen P. & Moore, Michael R., 2013. "Market design in cap and trade programs: Permit validity and compliance timing," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 671-687.
    3. Gabriel E Lade & C -Y Cynthia Lin Lawell & Aaron Smith, 2018. "Policy Shocks and Market-Based Regulations: Evidence from the Renewable Fuel Standard," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(3), pages 707-731.
    4. Ralf Martin & Mirabelle Mu?ls & Laure B. de Preux & Ulrich J. Wagner, 2014. "Industry Compensation under Relocation Risk: A Firm-Level Analysis of the EU Emissions Trading Scheme," American Economic Review, American Economic Association, vol. 104(8), pages 2482-2508, August.
    5. Nicola De Vivo & Giovanni Marin, 2018. "How neutral is the choice of the allocation mechanism in cap-and-trade schemes? Evidence from the EU-ETS," Argomenti, University of Urbino Carlo Bo, Department of Economics, Society & Politics, vol. 9(9), pages 1-24, January-A.
    6. Gabriel E. Lade & James Bushnell, 2019. "Fuel Subsidy Pass-Through and Market Structure: Evidence from the Renewable Fuel Standard," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(3), pages 563-592.
    7. Managi, Shunsuke & Okimoto, Tatsuyoshi, 2013. "Does the price of oil interact with clean energy prices in the stock market?," Japan and the World Economy, Elsevier, vol. 27(C), pages 1-9.
    8. Thijs Jong & Oscar Couwenberg & Edwin Woerdman, 2013. "Does the EU ETS Bite? The Impact of Allowance Over-Allocation on Share Prices," RSCAS Working Papers 2013/54, European University Institute.
    9. Stocking, Andrew, 2012. "Unintended consequences of price controls: An application to allowance markets," Journal of Environmental Economics and Management, Elsevier, vol. 63(1), pages 120-136.
    10. Emrah Koçak & Umit Bulut & Angeliki N. Menegaki, 2022. "The resilience of green firms in the twirl of COVID‐19: Evidence from S&P500 Carbon Efficiency Index with a Fourier approach," Business Strategy and the Environment, Wiley Blackwell, vol. 31(1), pages 32-45, January.
    11. Grossi, Luigi & Waterson, Michael, 2013. "German Energy Market Fallout from the Japanese Earthquake," CAGE Online Working Paper Series 157, Competitive Advantage in the Global Economy (CAGE).
    12. Gabriel E. Lade & James Bushnell, 2016. "Fuel Subsidy Pass-Through and Market Structure: Evidence from the Renewable Fuel Standard," Center for Agricultural and Rural Development (CARD) Publications 16-wp570, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    13. Elsayed, Ahmed H. & Billah, Mabruk & Goodell, John W. & Hadhri, Sinda, 2024. "Examining connections between the fourth industrial revolution and energy markets," Energy Economics, Elsevier, vol. 133(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Joltreau, Eugénie & Sommerfeld, Katrin, 2016. "Why does emissions trading under the EU ETS not affect firms' competitiveness? Empirical findings from the literature," ZEW Discussion Papers 16-062, ZEW - Leibniz Centre for European Economic Research.
    2. Michael Greenstone & John A. List & Chad Syverson, 2011. "The Effects of Environmental Regulation on the Competiveness of U.S. Manufacturing," Working Papers 11-03, Center for Economic Studies, U.S. Census Bureau.
    3. Robaina Alves, Margarita & Rodríguez, Miguel & Roseta-Palma, Catarina, 2011. "Sectoral and regional impacts of the European carbon market in Portugal," Energy Policy, Elsevier, vol. 39(5), pages 2528-2541, May.
    4. Dietrich Earnhart & Dylan G. Rassier, 2016. "“Effective regulatory stringency” and firms’ profitability: the effects of effluent limits and government monitoring," Journal of Regulatory Economics, Springer, vol. 50(2), pages 111-145, October.
    5. Martin, Ralf & de Preux, Laure B. & Wagner, Ulrich J., 2014. "The impact of a carbon tax on manufacturing: Evidence from microdata," Journal of Public Economics, Elsevier, vol. 117(C), pages 1-14.
    6. Sascha Rexhäuser & Christian Rammer, 2014. "Environmental Innovations and Firm Profitability: Unmasking the Porter Hypothesis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 57(1), pages 145-167, January.
    7. E. Mark Curtis, 2014. "Who Loses Under Power Plant Cap-and-Trade Programs?," NBER Working Papers 20808, National Bureau of Economic Research, Inc.
    8. Douglas A. Carr, 2011. "The Intergovernmental Fiscal Effects of the Clean Air Act," Public Finance Review, , vol. 39(6), pages 810-830, November.
    9. Copeland, Brian R., 2005. "Policy Endogeneity and the Effects of Trade on the Environment," Agricultural and Resource Economics Review, Cambridge University Press, vol. 34(1), pages 1-15, April.
    10. Cui, Jingbo & Moschini, GianCarlo, 2020. "Firm internal network, environmental regulation, and plant death," Journal of Environmental Economics and Management, Elsevier, vol. 101(C).
    11. Gary Koop & Lise Tole, 2008. "What is the environmental performance of firms overseas? An empirical investigation of the global gold mining industry," Journal of Productivity Analysis, Springer, vol. 30(2), pages 129-143, October.
    12. Becker, Randy A., 2011. "Local environmental regulation and plant-level productivity," Ecological Economics, Elsevier, vol. 70(12), pages 2516-2522.
    13. Ishikawa, Jota & 石川, 城太 & Okubo, Toshihiro & 大久保, 敏弘, 2008. "Greenhouse-gas Emission Controls and International Carbon Leakage through Trade Liberalization," CCES Discussion Paper Series 3, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
    14. Curtis, E. Mark, 2020. "Reevaluating the ozone nonattainment standards: Evidence from the 2004 expansion," Journal of Environmental Economics and Management, Elsevier, vol. 99(C).
    15. Oberndorfer, Ulrich, 2009. "EU Emission Allowances and the stock market: Evidence from the electricity industry," Ecological Economics, Elsevier, vol. 68(4), pages 1116-1126, February.
    16. Andersen, Dana C., 2018. "Accounting for loss of variety and factor reallocations in the welfare cost of regulations," Journal of Environmental Economics and Management, Elsevier, vol. 88(C), pages 69-94.
    17. Petrick, Sebastian & Wagner, Ulrich J., 2014. "The impact of carbon trading on industry: Evidence from German manufacturing firms," Kiel Working Papers 1912, Kiel Institute for the World Economy (IfW Kiel).
    18. Ye, Dezhu & Liu, Shasha & Kong, Dongmin, 2013. "Do efforts on energy saving enhance firm values? Evidence from China's stock market," Energy Economics, Elsevier, vol. 40(C), pages 360-369.
    19. Koch, Nicolas & Basse Mama, Houdou, 2019. "Does the EU Emissions Trading System induce investment leakage? Evidence from German multinational firms," Energy Economics, Elsevier, vol. 81(C), pages 479-492.
    20. Ralf Martin & Laure B. de Preux & Ulrich J. Wagner, 2009. "The impacts of the Climate Change Levy on business: evidence from microdata," GRI Working Papers 6, Grantham Research Institute on Climate Change and the Environment.

    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:isu:genres:13139. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Curtis Balmer (email available below). General contact details of provider: https://edirc.repec.org/data/deiasus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.