Global Spillovers of US Climate Policy Risk: Evidence from EU Carbon Emissions Futures

25 Pages Posted: 28 Jul 2022 Last revised: 5 Aug 2022

See all articles by Micah Fields

Micah Fields

Miami University of Ohio - Department of Economics

David Lindequist

Miami University - Department of Economics

Date Written: July 22, 2022

Abstract

Mitigating climate change is a global public good to which many different countries contribute. The incentive of each country to contribute through the provision of effective climate policies depends on other countries’ contributions. Climate policy risk spillovers arise when expected changes to climate policy stringency in one country affect expected climate policy stringency in another country. We present evidence for the existence of such climate policy risk spillovers from the United States (US) to the European Union (EU). Using an event study approach, we find significant effects of US climate policy events on the price of EU emission allowances (EUA): US policy events that signal weaker US commitment to climate protection decrease the price of EUA futures while US policy events that signal stronger US commitment to climate protection increase the price of EUA futures. This evidence is in line with the notion that financial markets expect EU climate policy to follow the direction of US policy. More broadly, our results point to the importance of regulatory risk spillovers that affect global climate policy coordination.

Keywords: EU emission allowances, US climate policy, climate policy coordination, regulatory risk, political uncertainty

JEL Classification: F64, H23, Q58

Suggested Citation

Fields, Micah and Lindequist, David, Global Spillovers of US Climate Policy Risk: Evidence from EU Carbon Emissions Futures (July 22, 2022). Available at SSRN: https://ssrn.com/abstract=4170198 or http://dx.doi.org/10.2139/ssrn.4170198

Micah Fields

Miami University of Ohio - Department of Economics ( email )

208 Laws Hall
Oxford, OH 45056
United States

David Lindequist (Contact Author)

Miami University - Department of Economics ( email )

83 N Patterson Ave
Oxford, OH 45056
United States

HOME PAGE: http:///www.david-lindequist.com/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
31
Abstract Views
83
PlumX Metrics