The Valuation Relevance of Greenhouse Gas Emissions under the European Union Carbon Emissions Trading Scheme

By Peter M. Clarkson, Yue Li, Matt Pinnuck, Gordon Richardson. 2015

415 citations recorded by the source corpus.

Abstract This study examines the valuation relevance of greenhouse gas emissions under the European Union Carbon Emissions Trading Scheme. We posit that carbon emissions affect firm valuation only to the extent that a firm's emissions exceed its carbon allowances under a cap-and-trade system and the extent of its inability to pass on carbon-related compliance costs to consumers and end-users. We measure a firm's ability to pass on the future costs by its market power and its carbon performance relative to its industry peers. The results show that firms' carbon allowances are not associated with firm valuation but the allocation shortfalls are negatively associated. We also find that the negative association between firm values and carbon emission shortfalls is mitigated for firms with better carbon performance relative to their industry peers and for firms in less competitive industry sectors. These findings, which suggest that the valuation impact of carbon emissions is unlikely to be homogenous across firms or industrial sectors, have important implications for future research design and for the disclosure and recognition of a firm's greenhouse gas liabilities.

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/82fd55b1b1bbce95e8e709be50c81360837ba9dd

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

1. Franziska Sump
2. Diogenis Baboukardos
3. P. Romilly
4. Stefan Lewandowski
5. Alexander Bassen
6. Omaima A. G. Hassan
7. Timo Busch
8. Haiyan Song

In Renewable Energy, Sustainability and the Environment

1. Stefan Lewandowski
2. Diogenis Baboukardos
3. Timo Busch
4. Haiyan Song
5. Stephen F. Witt

Citations in the corpus

• Relations between corporate economic performance, environmental disclosure and greenhouse gas emissions: new insights. (2018, result): “…conclude that good environmental performance is associated with good economic performance (e.g., Chapple et al., 2013; Matsumura et al., 2014; Clarkson et al., 2015; Baboukardos, 2017), but others still report mixed results (e.g., Misani and Pogutz, 2015; Zhao and Murrell, 2016; Nollet et…”
• Corporate Carbon and Financial Performance: A Meta‐analysis (2018, background): “For companies regulated under EU ETS, absolute emissions pose a cost factor and, accordingly, empirical studies report a significant relationship between absolute emissions and financial performance (e.g., Clarkson et al. 2015).”
• Corporate Carbon and Financial Performance Revisited (2020, background): “We also control for capital intensity (Brouwers et al., 2015; Clarkson et al., 2015; Delmas et al., 2015; Fujii et al., 2013; Griffin et al., 2017; Iwata & Okada, 2011; Jung et al., 2014; Wang et al., 2014).”
• Market valuation of greenhouse gas emissions under a mandatory reporting regime: Evidence from the UK (2017, background): “…and trust and ntends to contribute to the recent academic debate regarding the market valuation implications of GHG emissions (Chapple t al., 2013; Clarkson et al., 2015; Matsumura et al., 2014) by providing empirical evidence about the differences in the market aluation of emissions under a…”