How Robust is the Renewable Energy Industry to Political Shocks? Evidence from the 2016 U.S. Elections
Business & Politics, Forthcoming
36 Pages Posted: 2 Sep 2018
Date Written: June 20, 2018
Climate change mitigation relies increasingly on clean technologies such as renewable energy. Despite widespread success, further deployment of renewables has been met with resistance from voters and governments in several countries. How resilient is the renewable energy industry to adverse political events? I use the unexpected election of Donald Trump in the 2016 U.S. presidential race to study this question. As a vocal critic of renewables and a supporter of fossil fuels, his election is a plausible negative shock to the renewable energy sector. I examine stock market data to gauge the reaction of investors. I find that renewable energy stocks were adversely affected by the election. Overall, they experienced a cumulative abnormal loss in share values of about 6% on average over the twenty days that followed the election. However, I find that the negative effect is concentrated among non-U.S. firms. U.S. firms, on average, emerged unscathed. Non-U.S. companies, on the other hand, lost over 14% of their value in the aftermath of the election. This suggests that markets are more concerned by increasing obstacles to international business than a decrease of federal support for renewables.
Keywords: renewable energy, lock-in, event study, trade, stock market
JEL Classification: G14, H23, Q42, Q48, Q58
Suggested Citation: Suggested Citation