Science and the Stock Market: Investors’ Recognition of Unburnable Carbon

Science and the stock market: Investors' recognition of unburnable carbon, Energy Economics, Volume 52, Part A, December 2015, Pages 1-12, ISSN 0140-9883, DOI: 10.1016/j.eneco.2015.08.028

Posted: 2 Dec 2013 Last revised: 22 Oct 2015

Paul A. Griffin

University of California, Davis - Graduate School of Management; University of California, Davis

Amy Myers Jaffe

University of California, Davis

David H. Lont

University of Otago - Department of Accountancy and Finance

Rosa Dominguez-Faus

University of California, Davis

Date Written: August 25, 2015

Abstract

This paper documents the stock market's reaction to a 2009 paper in the Nature journal of science, which concluded that only a fraction of the world's existing oil, gas, and coal reserves could be emitted if global warming by 2050 were not to exceed 2 °C above pre-industrial levels. This Nature article is now one of the most cited environmental science studies in recent years. Our analysis indicates that this publication prompted an average stock price drop of 1.5% to 2% for our sample of the 63 largest U.S. oil and gas firms. Later, in 2012–2013, the press “discovered” this article, writing hundreds of stories on the grim consequences of unburnable carbon for fossil fuel companies. We show only a small negative reaction to these later stories, mostly in the two weeks following their publication. This limited market response contrasts with the predictions of some analysts and commentators of a substantial decline in the shareholder value of fossil fuel companies from a carbon bubble. Our paper discusses possible reasons for this discrepancy.

Keywords: U.S. energy companies; Unburnable carbon; Stranded assets; Nature journal; Media attention; Event study

JEL Classification: G14, Q4, Q56

Suggested Citation

Griffin, Paul A. and Jaffe, Amy Myers and Lont, David H. and Dominguez-Faus, Rosa, Science and the Stock Market: Investors’ Recognition of Unburnable Carbon (August 25, 2015). Science and the stock market: Investors' recognition of unburnable carbon, Energy Economics, Volume 52, Part A, December 2015, Pages 1-12, ISSN 0140-9883, DOI: 10.1016/j.eneco.2015.08.028. Available at SSRN: https://ssrn.com/abstract=2362154 or http://dx.doi.org/10.2139/ssrn.2362154

Paul A. Griffin (Contact Author)

University of California, Davis - Graduate School of Management ( email )

3102 Gallahger Hall
Davis, CA 95616
United States
(530) 752-7372 (Phone)
(425) 799-4143 (Fax)

HOME PAGE: http://www.gsm.ucdavis.edu/griffin/

University of California, Davis ( email )

3102 Gallahger Hall
Davis, CA 95616
United States
(530) 752-7372 (Phone)
(425) 799-4143 (Fax)

HOME PAGE: http://www.gsm.ucdavis.edu/griffin/

Amy Myers Jaffe

University of California, Davis ( email )

One Shields Avenue
Davis, CA 95616
United States

David H. Lont

University of Otago - Department of Accountancy and Finance ( email )

Box 56
Dunedin, Otago 9054
New Zealand
+64 3 479 8119 (Phone)
+64 3 479 8171 (Fax)

HOME PAGE: http://www.business.otago.ac.nz/acty/

Rosa Dominguez-Faus

University of California, Davis ( email )

One Shields Avenue
Davis, CA 95616
United States

HOME PAGE: http://www.its.ucdavis.edu/?page_id=10068&pub_author_id=968

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