The impact of carbon risk on stock returns: evidence from the European electric utilities

Bernardini, Enrico; Giampaolo, Johnny Di; Faiella, Ivan; Poli, Riccardo

doi:10.1080/20430795.2019.1569445

Cited by 55 publications

(40 citation statements)

References 20 publications

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“…In a more recent study, Bernardini et al (2019) take a different view on the influence of the EU ETS on stock returns. Following Oestreich and Tsiakas (2015), they estimate an extended version of the Capital Asset Pricing Model to test for the presence of abnormal excess returns for two investment portfolios differing in emission intensity.…”

Section: Electricity Sectormentioning

confidence: 99%

“…The most significant methodological variations on the basic MFM framework above consist in event studies, exploiting past exceptional variations in allowance prices, and extensions to vector co‐integration. As to more substantive conceptual variations, noteworthy are two studies (Oestreich and Tsiakas, ; Bernardini et al ., ) which, by a applying a different type of MFM, estimate and compare abnormal excess returns for dirty and clean investment portfolios differing in emission intensity, across the EU ETS trading periods.…”

Section: Mapping the Literaturementioning

confidence: 99%

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The Impact of the Eu Emissions Trading System on Competitiveness and Carbon Leakage: The Econometric Evidence

Verde

2020

Journal of Economic Surveys

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This paper carefully surveys the econometric literature that tests for competitiveness effects and related carbon leakage caused by the EU Emissions Trading System (EU ETS). The results of this literature tell us that to date there is no evidence of the EU ETS having had widespread negative or positive effects on the competitiveness of regulated firms, nor is there evidence of significant carbon leakage. However, the paper also identifies three important caveats to this general conclusion. Firstly, the evidence we have still largely refers to the first two trading periods, namely Phases I (2005–2007) and II (2008–2012). Secondly, some heterogeneity of estimated effects is observed, but patterns, notably sectoral patterns, hardly emerge. Thirdly, very little explored is whether the EU ETS has had long‐term effects on the economy via investment leakage or firm dynamics. Further empirical studies investigating these long‐term effects are particularly desirable.

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Section: Electricity Sectormentioning

confidence: 99%

Section: Mapping the Literaturementioning

confidence: 99%

The Impact of the Eu Emissions Trading System on Competitiveness and Carbon Leakage: The Econometric Evidence

Verde

2020

Journal of Economic Surveys

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“…In this context, it is interesting to note the empirical evidence, in the form of higher returns without a significant increase in risk, in favor of a market-based recognition by investors of European utilities' strategies towards decarbonization [66,67]. Other scholars have also revealed the presence of a statistically significant "carbon premium" for firms with high carbon emissions and higher exposure to carbon risk [68][69][70].…”

Section: Carbon Pricing Models-drivers and Impact On Economic Sectorsmentioning

confidence: 96%

A VaR-Based Methodology for Assessing Carbon Price Risk across European Union Economic Sectors

et al. 2021

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The latest European Union measures for combating climate adopted in the “Fit for 55 package” envisage the extension of the Emissions Trading System, the first “cap-and-trade” system in the world created for achieving climate targets, which limits the amount of greenhouse gas emissions by imposing a price on carbon. In this context, our study provides an integrated assessment of carbon price risk exposure of all economic sectors in the European Union Member States, thus supporting decision making in determining the energy transition risk. We propose a novel approach in assessing carbon risk exposure using the Value at Risk methodology to compute the carbon price under the EU ETS, based on historical price simulation for January–August 2021 and ARMA-GARCH models for the October 2012–August 2021 period. We further built a value erosion metric, which allowed us to establish each sector’s exposure to risk and to identify differences between Eastern and Western EU countries. We find that the refining sector appears to be highly vulnerable, whereas there is higher potential for large losses in the energy supply and chemical sectors in Eastern EU Member States, given a different pace of industry restructuring.

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“…Alessi et al (2019);Bernardini et al (2021).78 See In et al (2019); Choi et al (2020). 79 See ESRB (2020); Rodriguez (2010); Balcilar et al (2017).…”

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confidence: 99%

Climate Change and Monetary Policy in the Euro Area

et al. 2021

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This paper analyses the implications of climate change for the conduct of monetary policy in the euro area. It first investigates macroeconomic and financial risks stemming from climate change and from policies aimed at climate mitigation and adaptation, as well as the regulatory and fiscal effects of reducing carbon emissions. In this context, it assesses the need to adapt macroeconomic models and the Eurosystem/ECB staff economic projections underlying the monetary policy decisions. It further considers the implications of climate change for the conduct of monetary policy, in particular the implications for the transmission of monetary policy, the natural rate of interest and the correct identification of shocks. Model simulations using the ECB's New Area-Wide Model (NAWM) illustrate how the interactions of climate change, financial and fiscal fragilities could significantly restrict the ability of monetary policy to respond to standard business cycle fluctuations. The paper concludes with an analysis of a set of potential monetary policy measures to address climate risks, insofar as they are in line with the ECB's mandate.

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The impact of carbon risk on stock returns: evidence from the European electric utilities

Cited by 55 publications

References 20 publications

The Impact of the Eu Emissions Trading System on Competitiveness and Carbon Leakage: The Econometric Evidence

The Impact of the Eu Emissions Trading System on Competitiveness and Carbon Leakage: The Econometric Evidence

A VaR-Based Methodology for Assessing Carbon Price Risk across European Union Economic Sectors

Climate Change and Monetary Policy in the Euro Area

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