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Emissions Trading and Stock Returns: Evidence from the European Steel and Combustion Industries

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Energy Economics and Financial Markets

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Abstract

This chapter examines the impact of price changes of European Union Emission Allowances (EUAs) on stock returns of a sample of firms operating in the European steel and combustion industries. After the introduction of an EU-wide CO2 emissions trading system in 2005, the first phase of the emission plans was completed in 2007 and the process of the second phase is still evolving. The empirical analysis of this paper covers both the first and second phases to deal with capturing time variances for the importance of the trading scheme. It is found that EUA price changes are positively correlated with stock returns of firms operating only in combustion industries over the first phase (2005–2007). However, there is evidence of a significant impact of EUA price changes on stock returns of firms from both combustion and steel industries during the sample period in the second phase (2008–2010). Firm size, age and leverage are also examined to explain the size of emission trading exposures across firms. The finding is that neither of these variables appears to be a significant determinant. This evidence indicates that EUA exposure is independent of firms’ characteristics.

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Notes

  1. 1.

    The 2000 Green Paper was adopted by the European Commission on 29 November 2000 to determine policies for a long-term energy strategy. The main issue addressed in the Green Paper is that the EU must rebalance its supply policy by clear action in favor of a demand policy. With regard to demand, the Green Paper is calling for a real change in consumer behavior being more respectful of the environment. With regard to supply, the development of new and renewable energies is the key to change with regard to global warming.

  2. 2.

    For example, the percentages of cap auctions in the first and second phases are as follows for the following member states: Denmark 5 and 0; Hungary 2.5 and 2.3; Lithuania 1.5 and 2.9; Ireland 0.75 and 0.5; Austria 0 and 1.2; Belgium 0 and 0.3; Germany 0 and 8.8; Netherlands 0 and 4; UK 0 and 7 (Ellerman and Joskow 2008).

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Authors and Affiliations

  1. Faculty of Economics and Business, University of Groningen, Nettelbosje 2, 9747 AE, Groningen, The Netherlands

    Jeroen Bruggeman & Halit Gonenc

Authors
  1. Jeroen Bruggeman
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  2. Halit Gonenc
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Correspondence to Halit Gonenc .

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Editors and Affiliations

  1. , Department of Finance, VU University Amsterdam, De Boelelaan 1105, Amsterdam, 1081 HV, Netherlands

    André Dorsman

  2. Curtin Business School, School of Economics and Finance, Curtin University, Hayman Road, Bentley, Perth, 6845, West Australia, Australia

    John L. Simpson

  3. Faculty of Economics and Business, Economics, Econometrics and Finance, University of Groningen, Nettelbosje 2, Groningen, 9747 AE, Groningen, Netherlands

    Wim Westerman

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Bruggeman, J., Gonenc, H. (2013). Emissions Trading and Stock Returns: Evidence from the European Steel and Combustion Industries. In: Dorsman, A., Simpson, J., Westerman, W. (eds) Energy Economics and Financial Markets. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-30601-3_7

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  • DOI: https://doi.org/10.1007/978-3-642-30601-3_7

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  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-642-30600-6

  • Online ISBN: 978-3-642-30601-3

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