Profiting from Regulation: An Event Study of the EU Carbon Market

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.Emissions Markets; Incidence of Taxation; Event Study

Profiting from Regulation: An Event Study of the EU Carbon Market

Tradable permit regulations have recently been implemented for climate change policy in many countries. One of the first mandatory markets was the EU Emission Trading System, whose first phase ran from 2005-07. Unlike taxes, permits expose firms to volatility in regulatory costs, but are typically accompanied by property rights in the form of grandfathered permits. In this paper, we examine the effect of this type of environmental regulation on profits. In particular, changes in permit prices affect: (1) the direct and indirect input costs, (2) output revenue, and (3) the carbon permit asset value. Depending on abatement costs, output price sensitivity, and permit allocation, these effects may vary considerably across industries and firms. We run an event study of the carbon price crash on April 25, 2006 by examining the daily stock returns for 90 stocks from carbon intensive industries and approximately 600 stocks in the broad EUROSTOXX index. In general, firms in industries that tended to be either carbon intensive, or electricity intensive, but not involved in international trade, were hurt by the decline in permit prices. In industries that were known to be net short of permits, the cleanest firms saw the largest declines in share value. In industries known to be long in permits, firms granted the largest allocations were most harmed.

ENVIRONMENTAL STANDARDS AND DIRTY EXPORTS: A CASE STUDY ANALYSIS OF 24 COUNTRIES

This paper examines how the stringency of environmental regulations impact international trade patterns. It explores the hypothesis that environmental regulation does not have a significant impact on trade. An econometric analysis is conducted for 24 countries ranging from highly developed to extremely poor to investigate whether environmental regulations have a significant impact on countries exports of pollution intensive goods. This econometric model extends Leamer (1984)'s cross-section Heckscher-Ohlin-Vanek (HOV) model by incorporating measures of stringency of environmental regulation. Correlation between capital intensity and exports are mitigated by grouping the sample countries. The results suggest that Metal, Steels, Pulp and Paper, and Chemicals Industries exhibit a negative relationship.Environmental Economics and Policy, International Relations/Trade,

Optimal Environmental Taxation in the Presence of Other Taxes: General Equilibrium Analyses

This paper examines the optimal setting of environmental taxes in economies where other, distortionary taxes are present. We employ analytical and numerical models to explore the degree to which, in a second best economy, optimal environmental tax rates differ from the rates implied by the Pigovian principle (according to which the optimal tax rate equals the marginal environmental damages). Both models indicate, contrary to what several analysts have suggested, that the optimal tax rate on emissions of a given pollutant is generally less than the rate supported by the Pigovian principle. Moreover, the optimal rate is lower the larger are the distortions posed by ordinary taxes. Numerical results indicate that previous studies may have seriously overstated the size of the optimal carbon tax by disregarding pre-existing taxes.

The effect of sustainability reporting on financial performance: An empirical study using listed companies

Purpose - This study investigates the effect sustainability reporting has on companies’ financial performance. Sustainability reports are voluntarily released by companies that provide additional information to the stakeholders regarding the impact their activities have on the environment and society. Design/Methodology/Approach: This empirical paper analyses and identifies overlaps, gaps, limitations and flaws in current constructs of sustainability reporting. Using event study method to estimate abnormal returns for a 31 day event window for a sample of 68 listed companies, 17 listed in New Zealand Stock Exchange (NZX) and 51 listed in the Australian Stock exchange (ASX). Findings: Results of the empirical study indicate that sustainability reporting is statistically significant in explaining abnormal returns for the Australian companies. The cross-sectional analysis results of the combined dataset for the two countries support the view that the contextual factors of industry type significantly impacts abnormal returns of the reporting companies. In this regard, this study identifies several contextual factors, such as industry and type of sustainability report, that have the potential to impact the relationship. Only the CSR type of sustainability report was significant in explaining the abnormal return of New Zealand companies. Practical implications: To underscore the practical implications of the theory, it shows, by reference to the model, how sustainability reporting influences financial performance for companies engaged in industries that have environmental implications. However, the simplistic model may also have many other applications in management and the social sciences. Originality value: The proposed model is highly original in providing a framework for studying the impact of sustainability reporting in companies that have an environmental impact

Surviving success : policy reform and the future of industrial pollution in China

China's recent industrial growth, a remarkable success story, has been clouded by hundreds of thousands of premature deaths and incidents of serious respiratory illness caused by exposure to industrial air pollution. Seriously contaminated by industrial discharges, many of China's waterways are largely unfit for direct human use. This damage could be substantially reduced at modest cost. Industrial reform combined with stricter environmental regulation has reduced organic water pollution in many areas and has curbed the growth of air pollution. But much higher levels of emissions controls (of particulates and sulfur dioxide) are warranted in China's polluted cities. For the cost-benefit analysis that led to this conclusion, the authors developed threescenarios projecting pollution damage under varying assumptions about future policies. Their findings are: Even if regulation is not tightened further, continued economic reform should have a powerful effect on pollution intensity. Organic water pollution will stabilize in many areas and actually decline in some. Air pollution will continue growing in most areas but at a much slower pace than industrial output. The cost of inaction would be high--most of China's waterways will remain heavily polluted, and many thousands of people will die or suffer serious respiratory damage. Continuing current trends in tightened regulation for water pollution will lead to sharp improvements; adopting an economically feasible policy of much stricter regulation will restore the health of many waterways. The stakes are even higher for air pollution because regulatory enforcement has weakened in many areas in the past five years. Reversing that trend will save many lives at extremely modest cost. China's National Environmental Protection Agency (NEPA) has recommended a tenfold increase in the air pollution levy; adopting NEPA's very conservative recommendation would produce a major turnaround in most cities. For representative Chinese cities, a fiftyfold increase in the levy is probably warranted economically. To be cost-effective, heavy sources of particulate and sulfur dioxide emissions should be targeted for abatement. Reducing emissions from large private plants is so cheap that only significant abatement makes sense -- at least 70 percent abatement of sulfur dioxide particulates and even greater abatement of particulates in large urban industrial facilities.Public Health Promotion,Water and Industry,Environmental Economics&Policies,Pollution Management&Control,Sanitation and Sewerage,Water and Industry,Environmental Economics&Policies,Health Monitoring&Evaluation,Pollution Management&Control,TF030632-DANISH CTF - FY05 (DAC PART COUNTRIES GNP PER CAPITA BELOW USD 2,500/AL

Appalachian Coalfield Delegation Position Paper on Sustainable Energy

Appalachian grassroots groups(with support provided by the DataCenter) release a scathing report on the impact of coal mining to the United Nations Commission on Sustainable Development. The Delegation created an historic moment with its powerful stories and diverse outreach. Alliances were forged and the civil society discourse on energy, particularly what is sustainable energy and who gets to define it, has been challenged. Their answer---"it comes from the people!" As most government officials continue to ignore the atrocities of mountain top removal, coal sludge impoundments, and underground injections of sludge, it is up to the people of the Appalachian coal fields to let the world know the harsh realities of an economy built on seemingly cheap electricity

Foreign Direct Investment and Sustainable Development in the New EU Member States: Environmental Aspects

The aim of this paper is to examine the potential impact of foreign investors' activities on the environment of the new European Union's Member States and discuss a role of a common environmental policy and member states' policies towards foreign investors. The analysis embraces three new EU countries, namely the Czech Republic, Poland and Slovakia. The scope of the analysis are years 1997- 2007. The subject of the analysis is the sector and branch structure of FDI stock in the new EU Member States with special reference to FDI located in pollution-intensive industries which are selected according to the UNCTAD classification. Both the OECD and national data base of statistics is used to calculate the share of foreign investors' involvement in pollution-intensive activities in the new UE Member States. The research results show that as yet there has been no empirical evidence that FDI has a particularly negative impact on the natural environment in the new EU Member States.Celem artykulu jest zbadanie potencjalnego wplywu dzialalności inwestorów zagranicznych na środowisko w nowych krajach czlonkowskich Unii Europejskiej (UE) oraz ocena roli wspólnej polityki ochrony środowiska UE i polityki wobec inwestorów zagranicznych w tym zakresie. Analiza obejmuje trzy nowe kraje czlonkowskie UE, tj. Czechy, Polskę i Słowację. Zakres czasowy analizy to lata 1997-2007. Przedmiotem analizy jest struktura sektorowa i branżowa skumulowanych bezpośrednich inwestycji zagranicznych (BIZ) w tych krajach, ze szczególnym uwzględnieniem BIZ ulokowanych w przemyslach intensywnie zanieczyszczających środowisko. Do określenia tych przemyslów wykorzystano klasyfikację UNCTAD. W analizie statystycznej wykorzystano bazę danych OECD oraz statystyki narodowe. Wyniki badań wskazują, że - jak dotychczas - nie ma empirycznych dowodów, iż BIZ mają szczególnie negatywny wplyw na środowisko w nowych krajach czlonkowskich UE

Losing the War Against Dirty Money: Rethinking Global Standards on Preventing Money Laundering and Terrorism Financing

Following a brief overview in Part I.A of the overall system to prevent money laundering, Part I.B describes the role of the private sector, which is to identify customers, create a profile of their legitimate activities, keep detailed records of clients and their transactions, monitor their transactions to see if they conform to their profile, examine further any unusual transactions, and report to the government any suspicious transactions. Part I.C continues the description of the preventive measures system by describing the government\u27s role, which is to assist the private sector in identifying suspicious transactions, ensure compliance with the preventive measures requirements, and analyze suspicious transaction reports to determine those that should be investigated. Parts I.D and I.E examine the effectiveness of this system. Part I.D discusses successes and failures in the private sector\u27s role. Borrowing from theory concerning the effectiveness of private sector unfunded mandates, this Part reviews why many aspects of the system are failing, focusing on the subjectivity of the mandate, the disincentives to comply, and the lack of comprehensive data on client identification and transactions. It notes that the system includes an inherent contradiction: the public sector is tasked with informing the private sector how best to detect launderers and terrorists, but to do so could act as a road map on how to avoid detection should such information fall into the wrong hands. Part I.D discusses how financial institutions do not and cannot use scientifically tested statistical means to determine if a particular client or set of transactions is more likely than others to indicate criminal activity. Part I.D then turns to a discussion of a few issues regarding the impact the system has but that are not related to effectiveness, followed by a summary and analysis of how flaws might be addressed. Part I.E continues by discussing the successes and failures in the public sector\u27s role. It reviews why the system is failing, focusing on the lack of assistance to the private sector in and the lack of necessary data on client identification and transactions. It also discusses how financial intelligence units, like financial institutions, do not and cannot use scientifically tested statistical means to determine probabilities of criminal activity. Part I concludes with a summary and analysis tying both private and public roles together. Part II then turns to a review of certain current techniques for selecting income tax returns for audit. After an overview of the system, Part II first discusses the limited role of the private sector in providing tax administrators with information, comparing this to the far greater role the private sector plays in implementing preventive measures. Next, this Part turns to consider how tax administrators, particularly the U.S. Internal Revenue Service, select taxpayers for audit, comparing this to the role of both the private and public sectors in implementing preventive measures. It focuses on how some tax administrations use scientifically tested statistical means to determine probabilities of tax evasion. Part II then suggests how flaws in both private and public roles of implementing money laundering and terrorism financing preventive measures might be theoretically addressed by borrowing from the experience of tax administration. Part II concludes with a short summary and analysis that relates these conclusions to the preventive measures system. Referring to the analyses in Parts I and II, Part III suggests changes to the current preventive measures standard. It suggests that financial intelligence units should be uniquely tasked with analyzing and selecting clients and transactions for further investigation for money laundering and terrorism financing. The private sector\u27s role should be restricted to identifying customers, creating an initial profile of their legitimate activities, and reporting such information and all client transactions to financial intelligence units