Mengjie Shi (Deutsche Bundesbank and Goethe University) - The Impact of Climate Policies on Financial Markets: Evidence from the EU Carbon Border Adjustment Mechanism

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BOFIT Seminar - Mengjie Shi (Deutsche Bundesbank and Goethe University) - The Impact of Climate Policies on Financial Markets: Evidence from the EU Carbon Border Adjustment Mechanism

Co-authors: Christoph Meinerding (Deutsche Bundesbank) and Yupu Zhang (University of Edinburgh)

Abstract
The introduction of the EU Carbon Border Adjustment Mechanism (CBAM) has triggered statistically significant negative stock market responses for firms within the EU. Comparing EU customers that have non-EU suppliers in CBAM-affected industries with their nontreated peers in the control group, we find an extra cumulative abnormal return of up to -1.3 percentage points over our main five-day event window around December 13, 2022. Furthermore, we document substantial anticipatory market responses reflecting updated beliefs about broader climate policy developments going forward. This paper is the first to provide empirical evidence of carbon border tax impacts on firm valuations through international supply chains. Our findings contribute to the understanding of climate policy transmission through international trade networks and inform the debate on stranded assets resulting from environmental regulations.

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