Does Carbon Pricing Improve Clean Tech Profitability? A Comparative Analysis of the United States and Australia

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Abstract/Contents

Abstract: The literature on optimal climate change abatement policy stresses that a price on carbon dioxide emissions could play a crucial role in driving clean energy technology innovation. The premise underlying this theory is that forcing emissions-intensive energy production to internalize the externality will increase the profitability of clean energy production, thereby enhancing the incentive to innovate. This paper tests that assumption by using event study methodology to evaluate whether political events indicating the prospect of a price on carbon in Australia and the United States increased the share prices of clean energy firms in the two countries. I find that in Australia, investors responded to expectations of a carbon tax by bidding up the valuation of Australian clean energy firms substantially. I identify a similar response in the United States, but these effects are smaller in magnitude and not as statistically robust. I offer two possible explanations for the asymmetry of these results: differing political institutions between the two countries that make policy promises more credible in Australia than in the U.S. and variations in the proposed policies that could have caused investors to project that the Australian carbon tax would be a more effective driver of clean energy than the U.S. cap-and-trade system.

Type of resource	text
Date created	May 2012

Author	Nath, Ishan
Primary advisor	Wolak, Frank
Degree granting institution	Stanford University, Department of Economics

Subject	carbon tax
Subject	cap-and-trade
Subject	clean energy
Subject	event study
Subject	Australia
Subject	United States
Subject	Stanford Department of Economics
Genre	Thesis

Related item	Title 2012 John G. Sobieski Award for Creative Thinking
Location	https://purl.stanford.edu/vz550rs5708

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Preferred Citation: Nath, Ishan. (2012). Does Carbon Pricing Improve Clean Tech Profitability? A Comparative Analysis of the United States and Australia. Stanford Digital Repository. Available at: https://purl.stanford.edu/vz550rs5708

Stanford University, Department of Economics, Honors Theses

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