TITLE:
Carbon Emissions and Stock Returns: Evidence from the Chinese Pilot Emissions Trading Scheme
AUTHORS:
Miao Zhang, Russell B. Gregory-Allen
KEYWORDS:
Carbon Emissions Trading Schemes, Carbon Premium, CAPM, Fama French Three-Factor Model
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.11,
August
6,
2018
ABSTRACT: In response to mounting evidence of climate change
and the Kyoto Protocol, in 2011, the Chinese central government decided to
build a nationwide carbon emissions scheme, beginning with seven pilot schemes
launched in 2013. These pilot schemes
were based on the similar European Emissions Trading Scheme. Oestreich and
Tsiakas [1] examine the European scheme, finding when carbon emission
allowances were granted free of charge, firms who received them (defined as
“dirty” firms) outperformed the firms who did not (defined as “clean firms”),
indicating that there is a significant “carbon premium.” This study follows the
methodology of Oestreich and Tsiakas [1] with Chinese data from the largest of
the pilot schemes, the Shenzhen Pilot Emissions Trading Scheme. We find no
positive, significant carbon premium but do find weak evidence of a negative
premium for a special group of “very dirty” firms.