The Cost of Carbon: Capital Market Effects of the Proposed Emission Trading Scheme (ETS)

Abacus, Forthcoming

45 Pages Posted: 27 Dec 2009 Last revised: 24 Mar 2011

See all articles by Larelle Law Chapple

Larelle Law Chapple

QUT School of Business; Financial Research Network (FIRN)

Peter Clarkson

University of Queensland - Business School; Simon Fraser University (SFU) - Beedie School of Business; Financial Research Network (FIRN)

Daniel Gold

affiliation not provided to SSRN

Date Written: February 14, 2011

Abstract

The Australian Government has announced its intention to introduce a national Emissions Trading Scheme (ETS), now expected in 2011. This study, the first empirical study into pricing effects, investigates the impact of ETS on the market valuation of Australian Securities Exchange (ASX) firms. We hypothesise that firm value will be negatively related to its carbon intensity profile. Using a sample of 58 listed firms during 2007, based on event study methodology, we initially find that the market indeed prices the proposed ETS. Second, using a modified Ohlson (1995) valuation model, we find a market decrement for high intensity firms, relative to other sample firms, of between 7% and 10% of market capitalisation.

Keywords: emissions trading scheme, ETS, cost of carbon, environmental liabilities, market valuation

JEL Classification: G14, G18, K32, O16, Q51

Suggested Citation

Law Chapple, Larelle and Clarkson, Peter and Gold, Daniel, The Cost of Carbon: Capital Market Effects of the Proposed Emission Trading Scheme (ETS) (February 14, 2011). Abacus, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1526895

Larelle Law Chapple

QUT School of Business ( email )

GPO Box 2434
Brisbane, Queensland 4001
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Peter Clarkson (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Simon Fraser University (SFU) - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Daniel Gold

affiliation not provided to SSRN ( email )

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