DP20093 Global Spillovers of Climate Policy Shocks
The slow adoption of climate change policies stems from concerns about their economic impact. The EU has led global carbon pricing through its Emissions Trading Scheme (ETS). This study examines the effect of ETS policy shocks on global stock market returns at the country-industry level using linear and spatial autoregression models. Results show that while markets react negatively to rising carbon prices, the impact is small in magnitude. Global spillovers are limited to sectors linked to EU industries via intermediate goods trade, with no significant effects beyond these supply chain linkages. Overall, the unintended consequences of EU climate policies appear negligible, with minimal effects on targeted industries’ stock returns and no spillovers outside supply chain linkages.
