How does the US Market Value Greenhouse Gas Emissions? Evidence from the Electricity Sector

Abstract

How do US investors value greenhouse gas emissions of publicly listed firms? This paper quantifies the impact of power plants’ mandatory disclosure of greenhouse gas (GHG) emissions on the stock returns of firms that own the plants. Using a difference-in-differences strategy, I find that firms that first disclosed their GHG emissions under the GHG Reporting Program experienced a greater decrease in stock returns of 0.19 percentage points per million metric ton of CO2-equivalent (MMtCO2e). Including the possible information leakage one day prior to the event, the cumulative decrease in stock returns over the two-day period is 0.33 percentage points per MMtCO2e. That investors pay attention to GHG emissions implies that disclosure is a low-cost policy instrument that should be used especially in the absence of first-best tools.

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Ruiwen Lee
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I am an environmental economist.