Do Markets Punish Carbon? Evidence from the EU ETS and the Green Deal

Sammanfattning

This thesis examines the relationship between climate regulation and firm valuation, focusing on the EU Emissions Trading System (ETS) and the EU Green Deal. Using panel data on European and US firms from 2015-2023, the analysis combines baseline regressions with a difference-in-differences (DiD) approach to examine changes in valuation associated with the Green Deal as a regulatory shock. The results show that firms in carbon-intensive (ETS) industries are not uniformly discounted, exhibiting higher enterprise value-based multiples but lower equity-based measures. The DiD analysis provides evidence of a relative decline in valuation for ETS-exposed firms following the Green Deal, particularly when comparing EU firms to US peers within the same industries. While ESG performance is positively associated with valuation in baseline models, it does not significantly moderate the effect of climate regulation. Overall, the findings suggest that regulatory exposure, rather than ESG performance, is most strongly associated with valuation differences in the context of climate policy.