The influence of carbon risk on firm value: Evidence from the European Union Emission Trading Scheme.

This paper examines the impact of carbon risk induced through carbon price uncertainty in cap-and-trade policies on the value of covered firms. Specifically, the study explores the effects of policy adjustments made at the start of the third phase of the European Union Emission Trading Scheme (EU ETS), which aimed to address an oversupply of carbon allowances. Using a difference-in-difference approach, we find that the resulting increase in policy-induced carbon risk led to value discounts for firms with insufficient carbon allowances to offset their emissions, even when carbon prices themselves remained low.

The influence of environmental regulation on the FDI location choice of EU ETS-covered MNEs.

This paper explores how cross-country differences in environmental regulatory stringency among member states of the world's largest multinational cap-and-trade system, the European Union Emission Trading Scheme (EU ETS), influenced the FDI location choice of listed multinationals (MNEs) regulated by the environmental policy. After controlling for other country characteristics driving FDI location choice, we find that the likelihood of EU ETS-covered MNEs locating new FDI projects in less environmentally stringent member states strongly depends on firm- and industry-specific environmental characteristics during the system's first two phases. Our results are robust to different measures of environmental stringency and provide evidence for the existence of an intra-regional pollution haven effect (PHE).