The Impact of the Paris Agreement on Fossil Fuel Companies: An Event Study Analysis
Journal: Modern Economics & Management Forum DOI: 10.32629/memf.v6i4.4275
Abstract
This study employs an event study approach to investigate the impact of the Paris Agreement on the stock returns of 30 major global fossil fuel companies, a critical analysis amid escalating global efforts to decarbonize energy systems. Utilizing daily stock price data extracted from Yahoo Finance, with the Dow Jones Industrial Average serving as the market benchmark, the research calculates abnormal returns (AR) and cumulative abnormal returns (CAR), complemented by t-tests to assess statistical significance. The analysis spans two distinct time windows: a short-term event window (December 7–18, 2015) to capture immediate market reactions and a medium-term post-event window (December 21, 2015–February 5, 2016) to evaluate sustained effects. Results indicate that short-term abnormal returns exhibit substantial volatility without achieving statistical significance, reflecting investor uncertainty regarding the agreement’s immediate implications. In contrast, medium-term cumulative abnormal returns demonstrate significant negativity, with coal and power companies recording the most pronounced declines; notably, even diversified energy firms, despite their broader portfolios, face heightened market skepticism. These findings underscore the increasing integration of climate policies into global financial markets, emphasizing the imperative for fossil fuel companies to expedite low-carbon transition strategies to align with evolving global decarbonization objectives.
Keywords
climate change, fossil fuel companies, event study, impact
Full Text
PDF - Viewed/Downloaded: 9 TimesReferences
[1]Intergovernmental Panel on Climate Change (IPCC). (2023). Climate Change 2023: Synthesis Report. Available from: https://www.ipcc.ch/report/ar6/syr/ [Accessed 3 August 2024].
[2]UNFCCC. (2015). Paris Agreement. United Nations Framework Convention on Climate Change.
[3]McGlade, C. and Ekins, P. The geographical distribution of fossil fuels unused when limiting global warming to 2 °C. Nature. 2015; 517(7533): 187–190.
[4]Fahmy, H. The rise in investors’ awareness of climate risks after the Paris Agreement and the clean energy-oil-technology prices nexus. Energy Economics. 2022; 106.
[5]Monasterolo, I. and de Angelis, L. Blind to carbon risk? An analysis of stock market reaction to the Paris Agreement. Ecological Economics. 2020; 170.
[6]MacKinlay, A. C. Event studies in economics and finance. Journal of Economic Literature. 1997; 35(1): 13-39.
[7]Brown, S. J., & Warner, J. B. Using daily stock returns: The case of event studies. Journal of Financial Economics. 1985; 14(1): 3-31.
[8]Ji, X., Bu, N. (Tom), Zheng, C., Xiao, H., Liu, C., Chen, X. and Wang, K. Stock market reaction to the COVID-19 pandemic: an event study. Portuguese Economic Journal. 2022
[9]ALAM, M.N., ALAM, Md.S. and CHAVALI, K. Stock Market Response during COVID-19 Lockdown Period in India: An Event Study. The Journal of Asian Finance, Economics and Business. 2020; 7(7): 131–137.
[10]He, Q., Liu, J., Wang, S. and Yu, J. The impact of COVID-19 on stock markets. Economic and Political Studies. 2020; 8(3): 275–288.
[11]Guterres, I. Enforcing Environmental Policy – the role of the European Union. UNIO – EU Law Journal. 2022; 8(1): 32–52.
[2]UNFCCC. (2015). Paris Agreement. United Nations Framework Convention on Climate Change.
[3]McGlade, C. and Ekins, P. The geographical distribution of fossil fuels unused when limiting global warming to 2 °C. Nature. 2015; 517(7533): 187–190.
[4]Fahmy, H. The rise in investors’ awareness of climate risks after the Paris Agreement and the clean energy-oil-technology prices nexus. Energy Economics. 2022; 106.
[5]Monasterolo, I. and de Angelis, L. Blind to carbon risk? An analysis of stock market reaction to the Paris Agreement. Ecological Economics. 2020; 170.
[6]MacKinlay, A. C. Event studies in economics and finance. Journal of Economic Literature. 1997; 35(1): 13-39.
[7]Brown, S. J., & Warner, J. B. Using daily stock returns: The case of event studies. Journal of Financial Economics. 1985; 14(1): 3-31.
[8]Ji, X., Bu, N. (Tom), Zheng, C., Xiao, H., Liu, C., Chen, X. and Wang, K. Stock market reaction to the COVID-19 pandemic: an event study. Portuguese Economic Journal. 2022
[9]ALAM, M.N., ALAM, Md.S. and CHAVALI, K. Stock Market Response during COVID-19 Lockdown Period in India: An Event Study. The Journal of Asian Finance, Economics and Business. 2020; 7(7): 131–137.
[10]He, Q., Liu, J., Wang, S. and Yu, J. The impact of COVID-19 on stock markets. Economic and Political Studies. 2020; 8(3): 275–288.
[11]Guterres, I. Enforcing Environmental Policy – the role of the European Union. UNIO – EU Law Journal. 2022; 8(1): 32–52.
Copyright © 2025 Ge Feng
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License