Document Type

Working Paper

Publication Date


Working Paper Number

WP #11005, December 2010 revised April 2011


We investigate the effect of cap-and-trade regulation of CO2 on firm profits by performing an event study of a CO2 price crash in the EU market. We examine returns for 90 stocks from carbon intensive industries and 600 stocks in the broad EUROSTOXX index. Firms in carbon intensive, or electricity intensive industries, but not involved in international trade were most hurt by the event. This implies investors were focused on product price impacts, rather than compliance costs. We find evidence that firms' net allowance positions also strongly influenced the share price response to the decline in allowance prices.

Publication Status

Published as "Profiting from regulation: an event study of the EU carbon market" in American Economic Journal: Economic Policy, Vol. 5 no. 4 (November 2013).

JEL Classification

G14, H22, H23, Q50, Q54

File Format



42 pages

File Function

This version: April 2011 (First draft: December 2010); Title on title page: Profiting from regulation: an event study of the European carbon market

Included in

Economics Commons