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Science and the stock market: Investors' recognition of unburnable carbon

Author

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  • Griffin, Paul A.
  • Jaffe, Amy Myers
  • Lont, David H.
  • Dominguez-Faus, Rosa

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.

Suggested Citation

  • Griffin, Paul A. & Jaffe, Amy Myers & Lont, David H. & Dominguez-Faus, Rosa, 2015. "Science and the stock market: Investors' recognition of unburnable carbon," Energy Economics, Elsevier, vol. 52(PA), pages 1-12.
    • Handle: RePEc:eee:eneeco:v:52:y:2015:i:pa:p:1-12
    DOI: 10.1016/j.eneco.2015.08.028
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    U.S. energy companies; Unburnable carbon; Stranded assets; Nature journal; Media attention; Event study;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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