Profiting from Regulation: An Event Study of the EU Carbon Market / James B. Bushnell, Howard Chong, Erin T. Mansur.

Format:

Book

Author/Creator:

Bushnell, James B.

Contributor:

National Bureau of Economic Research.

Chong, Howard.

Mansur, Erin T.

Series:

Working Paper Series (National Bureau of Economic Research) no. w15572.

NBER working paper series no. w15572

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Profiting from Regulation

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2009.

Summary:

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.

Notes:

Print version record

December 2009.