Global carbon budgets and the viability of new fossil fuel projects

Jaccard, Mark; Hoffele, James; Jaccard, Torsten

doi:10.1007/s10584-018-2206-2

Cited by 33 publications

(3 citation statements)

References 18 publications

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“…Recent evidence suggests that the divestment movement may not have influenced the decision of Germany's major electric companies to remove select fossil fuel operations from their company portfolio, however, there is a gap in the literature on its effect on fossil fuel companies [94]. Though lower share prices increase the costs of financial capital [95], the effect on the exploration of new fossil fuel resources [34] is still unclear. Furthermore, the impact of divestment on fossil fuel extraction in different parts of the world should be analyzed to address equity considerations regarding fossil fuel extraction [96].…”

Section: Discussionmentioning

confidence: 99%

“…Finally, divestment can influence the fossil-fuel industry [32] by raising the costs of capital [33], restricting corporate solvency to explore and exploit new reserves, and weakening production capacity in the long run [34]. Notably, even if there is no impact of divestment announcements on the stock price, the reputational damage could be impactful enough to achieve change in the industry, as literature on corporate reputation shows [35][36][37].…”

Section: Introductionmentioning

confidence: 99%

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The Impact of Divestment Announcements on the Share Price of Fossil Fuel Stocks

Dordi

Weber

2019

Sustainability

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Several prominent institutional investors concerned about climate change have announced their intention or have divested from fossil fuel shares, to limit their exposure to the industry. The act of fossil fuel divestment may directly depress share prices or stigmatize the industry’s reputation, resulting in lower share value. While there has been considerable research conducted on the performance of the fossil fuel industry, there is not yet any empirical evidence that divestment announcements influence share prices. Adopting an event study methodology, this study measures abnormal deviations in stock prices of the top 200 global oil, gas, and coal companies by proven reserves, on days of prominent divestment announcements. Events are analyzed independently and in aggregate. The results make several notable contributions. While many events experienced short-term negative abnormal returns around the event day, the effects of events were more pronounced over longer event windows following the New York Climate March, suggesting a shift in investor perception. The results also find that divestment announcements related to campaigns, pledges, and endorsements all have a significant effect over the short-term event window. Finally, the results control for the general underperformance of the industry over the estimation window, attesting that the price change is caused by divestment announcements. Several robustness tests using alternate expected returns models and statistical tests were conducted to ensure the accuracy of the result. Overall, this study finds that divestment announcements decrease the share price of the fossil fuel companies, and thus, we conclude that ‘divestors’ can influence the share price of their target companies. Theoretically, the result adds new knowledge regarding the efficacy of the efficient market hypothesis in relation to divestment.

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Section: Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

The Impact of Divestment Announcements on the Share Price of Fossil Fuel Stocks

Dordi

Weber

2019

Sustainability

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“…The COVID-19 pandemic triggered a historic drop in oil demand for 2020 and has prompted downward revisions in long-term forecasts for growth in demand and prices. Jaccard et al ( 2018 ) find that a less than 5% probability of viable Canadian oil sands expansion under the 2 °C carbon budget rises to 30% if OPEC agrees to significantly reduce its market share by 2045. However, existing modeling of fossil fuel supply and climate change overlooks the effect of subsidized reserves development costs and intertemporal changes in demand.…”

Section: Introductionmentioning

confidence: 99%

The supply-side climate policy of decreasing fossil fuel tax profiles: can subsidized reserves induce a green paradox?

Day

2022

Climatic Change

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Fossil fuel producers develop too many reserves for combustion due to subsidies for upfront development costs. The conventional wisdom is that downward-sloping tax profiles avoid green paradox outcomes by reducing present extraction. This paper shows that accounting for subsidized reserves development can induce green paradox outcomes for downward-sloping income tax profiles. A theoretical model linking reserves development and extraction with climate change damages is developed to explore conditions for the weak and strong green paradox outcomes of higher present extraction and cumulative damages. We find that the weak green paradox arises under higher and flatter income tax profiles. The strong green paradox is an ambiguous outcome without subsidized reserves development. Quantitative examples demonstrate the effect of downward-sloping tax profiles on crude oil extraction and how the strong green paradox arises when delayed emissions are less relevant for damages.

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