Full Title: Science and the Stock Market: Investors’ Recognition of Unburnable Carbon
Author(s): Rosa Dominguez-Faus, Paul A. Griffin, Amy Myers Jaffe, and David H. Lont
Publisher(s): Accepted presentation at the 37th International Association for Energy Economics Conference on Energy and the Economy, New York, June 2014
Publication Date: 05/2014
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This paper documents the stock market’s reaction to findings reported in a 2009 article in the prestigious Nature journal of science reporting 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 2oC above pre-industrial levels. The Nature article is now one of the most cited environmental science studies in recent years. Our analysis indicates that this publication prompted at most an average drop in stock price of 2% for our sample of the 63 largest U.S. oil and gas companies. Later, in 2012-2013, the press “discovered” this article, and then wrote 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 firms from a carbon bubble. Our paper discusses possible reasons for this discrepancy.