Global Spillovers of US Climate Policy Risk: Evidence from EU Carbon Emissions Futures
Micah Fields David Lindequist
International climate policy risk spillovers arise when expected changes to climate policy stringency in one country affect expected climate policy stringency in another country. We provide evidence for the existence of such spillovers from the United States (US) to the European Union (EU). We develop a strategy to identify regulatory risk spillovers in emission trading systems using dynamic model averaging in an otherwise standard event study framework. Results indicate that financial markets expect EU regulators to follow the direction of US climate policy. Our findings highlight the importance of regulatory risk spillovers in the context of global climate policy coordination.
C53 F64 G14 Q58
EU emission allowances US climate policy emissions trading regulatory risk political uncertainty climate policy coordination dynamic model averaging