Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/46548
Authors: 
Gans, Will
Hintermann, Beat
Year of Publication: 
2011
Series/Report no.: 
CESifo working paper: Energy and Climate Economics 3445
Abstract: 
Why do for-profit firms take voluntary steps to improve the environment? Brand appeal to green consumers or investors, the ability to influence or avoid regulation, or the experience gained for future regulation, have all been suggested as possible reasons. The empirical evidence is decidedly mixed. This paper uses 19 years of monthly stock price returns to examine the profitability of participation in the world's largest voluntary greenhouse gas mitigation program: the Chicago Climate Exchange. After controlling for systemic market risk as well as industry-specific shocks, we find no statistically significant impact of announcing to join CCX on excess returns. However, the market appeared to be sensitive to changes in abatement costs implied by CCX membership. Most strikingly, the progress of proposed greenhouse gas legislation (the Waxman-Markey bill) had a positive impact on excess returns for CCX member firms, suggesting that the most profitable incentive for firms to join CCX is to prepare for future regulation. Our results imply that relying on voluntary approaches alone to combat climate change may not be enough.
Subjects: 
voluntary action
firm performance
climate change
permit markets
JEL: 
Q53
Q54
Document Type: 
Working Paper

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