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Political Science > Environmental Policy

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Cover IMF Working Papers
Decomposing Climate Risks in Stock Markets
Yuanchen Yang, Chengyu Huang, and Yuchen Zhang
Climate change poses an unprecedented challenge to the world economy and the global financial system. This paper sets out to understand and quantify the impact of climate mitigation, with a focus on climate-related news, which represents an important information source that investors use to revise their subjective assessments of climate risks. Using full-text data from Financial Times from January 2005 to March 2022, we develop machine learning-based indicators to measure risks from climate mitigation, and the direction of the risk is identified through manual labels. The documented risk premium indicates that climate mitigation news has been partially priced in the Canadian stock market. More specifically, stock prices react positively to market-wide climate-favorable news but they do not react negatively to climate-unfavorable news. The results are robust to different model specifications and across equity markets.
Keywords:
Climate Mitigation; Machine Learning; Asset Pricing; climate mitigation news; climate news factor; sorting strategy; EU stock market; climate news coverage; Climate change; Climate policy; Oil sector; Asset prices; Global
Cover IMF Working Papers
The Impact of Climate Policy on Oil and Gas Investment: Evidence from Firm-Level Data
Mr. Christian Bogmans, Mr. Andrea Pescatori, and Ervin Prifti
Using a text-based firm-level measure of climate policy exposure, we show that climate policies have led to a global decline of 6.5 percent in investment among publicly traded oil and gas companies between 2015 and 2019, with European companies experiencing the most significant impact. Similarly, climate policy uncertainty has also had a negative impact. Results support the Neoclassical investment model, which predicts a pre-emptive cut in investment in reaction to downward shifts in prospective demand, in contrast with the “green paradox” that predicts an increase in current investment to shift production toward the present.
Keywords:
Fossil fuel phase out; Paris Agreement; energy transition; DiD; climate policy uncertainty; gas investment; investment model; climate policy exposure; gas firm; Climate policy; Oil sector; Climate change; Oil prices; Carbon tax; Global