Capital market response to emission rights returns: Evidence from the European power sector

Stefan Veith, Jörg R. Werner and Jochen Zimmermann

Energy Economics, 2009, vol. 31, issue 4, 605-613

Abstract: Prior studies on the distributional effects of the European Union's Emission Trading Scheme (EU ETS) have so far only relied on supply and demand data. Empirical evidence from capital markets has been missing. We address this gap and measure the ETS's economic consequences, using the expectations of investors towards the regulatory impact on firm value. Employing a multifactor model, we show that returns on common stock of the largest affected industry, power generation, are positively correlated with rising prices for emission rights. This implies that the market predicts that firms are not only able to pass on their share of the regulatory burden to customers but even achieve windfall profits by overcompensating for the costs.

Keywords: Emission; trade; Emission; rights; CAPM; Electricity; industry (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (73)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140-9883(09)00005-X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:31:y:2009:i:4:p:605-613

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().