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Burn now or never? Climate change exposure and investment of fossil fuel firms

Author

Listed:
  • Adolfsen, Jakob Feveile
  • Heissel, Malte
  • Manu, Ana-Simona
  • Vinci, Francesca

Abstract

We investigate the impact of expectations about future climate policy on investment decisions of fossil fuel firms. Our empirical analysis reveals that firms with greater exposure to climate change significantly increased their investment in response to the Paris Agreement, in contrast to firms with lower exposure. Importantly, investment was directed towards traditional activities in the fossil fuel industry. By contrast, there are no indications that firms invested to transition towards renewable energy sources nor in making production less carbon-intensive. Our findings contribute to the ongoing discussion about the potential adverse effects of delays in the implementation of climate regulation. JEL Classification: G31, G38, Q58

Suggested Citation

  • Adolfsen, Jakob Feveile & Heissel, Malte & Manu, Ana-Simona & Vinci, Francesca, 2024. "Burn now or never? Climate change exposure and investment of fossil fuel firms," Working Paper Series 2945, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20242945
    Note: 2663204
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    More about this item

    Keywords

    climate change; fossil fuels; green paradox; investment; policy;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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