Does Carbon Risk Matter? Evidence of Carbon Premium in EU Energy-Intensive Companies

Pawel Witkowski,Adam Adamczyk,Slawomir Franek

doi:10.3390/en14071855

Abstract

In this paper we have assessed the impact of the European Union’s Emissions Trading Scheme (EU ETS) on the level of the carbon premium. The aim of the study is to determine whether there is a stable carbon premium in energy-intensive sectors. Unlike other studies, our research sample included not only companies in the energy sector, but also entities classified as energy-intensive. In the research, we used our own criterion for allocating companies to a clean and dirty portfolio, which made it possible to make the estimation of the carbon premium more resistant to changes in the rules for allocation of emission allowances. We detected a positive, statistically significant carbon premium in the years 2003–2012 and a negative one in the years 2013–2015, but we did not detect a statistically significant carbon premium in the period 2016–2019. This means that there are no grounds for concluding that there is a stable, positive carbon premium for energy-intensive companies subject to the EU ETS over time. We have also noticed that a significant problem in studying the impact of the EU ETS on the carbon premium is the use of static portfolios of clean and dirty companies

Highlights

Climate change is one of the main challenges of modern civilization [1,2]
The convergence of our results with those of similar studies in the electric utilities sector confirms the transmission of carbon risk from the electric utilities sector to energy-intensive sectors, which is an important assumption of the concept of transition risk
Our methodology is based on our own criterion for allocating companies to a clean and dirty portfolio, which makes it possible to make the estimation of the carbon premium more resistant to changes in the rules for allocation of emission rights

Summary

Introduction

Climate change is one of the main challenges of modern civilization [1,2]. The global nature of this challenge has forced international cooperation, which has resulted in international agreements, especially the United Nations Framework Convention on ClimateChange (UNFCC) entered into force on 21 March 1994 [3]. Climate change is one of the main challenges of modern civilization [1,2]. The global nature of this challenge has forced international cooperation, which has resulted in international agreements, especially the United Nations Framework Convention on Climate. The Kyoto Protocol operationalizes the UNFCC by committing industrialized countries and economies in transition to limit and reduce greenhouse gas (GHG) emissions in accordance with agreed individual targets. This system aims to reduce greenhouse gas emissions while limiting the negative economic effects of this solution as much as possible [4]. At the beginning it consisted of an allocation of free allowances to all enterprises emitting GHG.

Objectives

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Discussion

Conclusion