The financial and environmental performance of firms exposed to the EU Emissions Trading Scheme

This thesis is an empirical-based study of the European Union’s Emissions Trading Scheme (EU ETS) and its implications in terms of corporate environmental and financial performance. The novelty of this study includes the extended scope of the data coverage, as most previous studies have examined only the power sector. The use of verified emissions data of ETS-regulated firms as the environmental compliance measure and as the potential differentiating criteria that concern the valuation of EU ETS-exposed firms in the stock market is also an original aspect of this study. The study begins in Chapter 2 by introducing the background information on the emission trading system (ETS), which focuses on (i) the adoption of ETS as an environmental management instrument and (ii) the adoption of ETS by the European Union as one of its central climate policies. Chapter 3 surveys four databases that provide carbon emissions data in order to determine the most suitable source of the data to be used in the later empirical chapters. The first empirical chapter, which is also Chapter 4 of this thesis, investigates the determinants of the emissions compliance performance of the EU ETS-exposed firms through constructing the best possible performance ratio from verified emissions data and self-configuring models for a panel regression analysis. Chapter 5 examines the impacts on the EU ETS-exposed firms in terms of their equity valuation with customised portfolios and multi-factor market models. The research design takes into account the emissions allowance (EUA) price as an additional factor, as it has the most direct association with the EU ETS to control for the exposure. The final empirical Chapter 6 takes the investigation one step further, by specifically testing the degree of ETS exposure facing different sectors with sector-based portfolios and an extended multi-factor market model. The findings from the emissions performance ratio analysis show that the business model of firms significantly influences emissions compliance, as the capital intensity has a positive association with the increasing emissions-to-emissions cap ratio. Furthermore, different sectors show different degrees of sensitivity towards the determining factors. The production factor influences the performance ratio of the Utilities sector, but not the Energy or Materials sectors. The results show that the capital intensity has a more profound influence on the utilities sector than on the materials sector. With regard to the financial performance impact, ETS-exposed firms as aggregate portfolios experienced a substantial underperformance during the 2001–2004 period, but not in the operating period of 2005–2011. The results of the sector-based portfolios show again the differentiating effect of the EU ETS on sectors, as one sector is priced indifferently against its benchmark, three sectors see a constant underperformance, and three sectors have altered outcomes.

Mid-holocene and last glacial maximum climate simulations with the IPSL model-part I: comparing IPSLCM5A to IPSLCM4

The climates of the mid-Holocene (MH), 6,000 years ago, and of the Last Glacial Maximum (LGM), 21,000 years ago, have extensively been simulated, in particular in the framework of the Palaeoclimate Modelling Intercomparion Project. These periods are well documented by paleo-records, which can be used for evaluating model results for climates different from the present one. Here, we present new simulations of the MH and the LGM climates obtained with the IPSL_CM5A model and compare them to our previous results obtained with the IPSL_CM4 model. Compared to IPSL_CM4, IPSL_CM5A includes two new features: the interactive representation of the plant phenology and marine biogeochemistry. But one of the most important differences between these models is the latitudinal resolution and vertical domain of their atmospheric component, which have been improved in IPSL_CM5A and results in a better representation of the mid-latitude jet-streams. The Asian monsoon’s representation is also substantially improved. The global average mean annual temperature simulated for the pre-industrial (PI) period is colder in IPSL_CM5A than in IPSL_CM4 but their climate sensitivity to a CO2 doubling is similar. Here we show that these differences in the simulated PI climate have an impact on the simulated MH and LGM climatic anomalies. The larger cooling response to LGM boundary conditions in IPSL_CM5A appears to be mainly due to differences between the PMIP3 and PMIP2 boundary conditions, as shown by a short wave radiative forcing/feedback analysis based on a simplified perturbation method. It is found that the sensitivity computed from the LGM climate is lower than that computed from 2 × CO2 simulations, confirming previous studies based on different models. For the MH, the Asian monsoon, stronger in the IPSL_CM5A PI simulation, is also more sensitive to the insolation changes. The African monsoon is also further amplified in IPSL_CM5A due to the impact of the interactive phenology. Finally the changes in variability for both models and for MH and LGM are presented taking the example of the El-Niño Southern Oscillation (ENSO), which is very different in the PI simulations. ENSO variability is damped in both model versions at the MH, whereas inconsistent responses are found between the two versions for the LGM. Part 2 of this paper examines whether these differences between IPSL_CM4 and IPSL_CM5A can be distinguished when comparing those results to palaeo-climatic reconstructions and investigates new approaches for model-data comparisons made possible by the inclusion of new components in IPSL_CM5A.