Title : Do carbon prices affect stock returns?
Speaker: Adrian Lam (University of Amsterdam)
Time & venue: 02.02.2023, 14:15 – 15:45 / Humboldt-Universität zu Berlin, School of Business and Economics, Dorotheenstr. 1, Room 405
Host: Max Bruche
Abstract
The paper studies the relationship between carbon pricing and corporate financial performance. The empirical setting exploits time series changes in carbon prices and cross-sectional heterogeneity in emissions activities in Phase 3 of the European Union Emissions Trading Scheme (EU ETS). We find that the relationship between carbon prices and stock returns depends critically on the proportion of emissions covered by freely allocated permits: For firms with a significant shortfall in emissions allowances, a 1% increase in daily carbon prices translates into a 0.0121% lower contemporaneous returns. For firms with freely allocated permits exceeding verified emissions, a 1% increase in daily carbon prices translates into a 0.0145% higher contemporaneous returns. We provide suggestive evidence that firms with a significant permit shortfall reduce EU but not global emissions. Together, our findings highlight the key challenges for public policy on carbon pricing.
