Tech Trends May Draw More Reaction than Paris Accord, Trump Election

WASHINGTON, DC—The Paris Agreement in late 2015 was both expected and widely acclaimed as a climate policy milestone. By contrast, the US election of President Donald Trump almost a year later was widely unexpected but nonetheless considered good news for the fossil-fuel industry.

A study posted today by Resources for the Future (RFF) seeks to evaluate the impact of these major climate moments by examining their effect on the global market value of energy sector firms. The study concludes that despite the public prominence of these events, media and policy makers may be better served by focusing on actual long run-changes in technology and other factors such as consumer preferences and resource availability.

The authors are Dr. Thomas Sterner of the University of Gothenburg and an RFF University Fellow, and Samson Mukanjari, a corresponding author at the University of Gothenburg. The study is, “Do Markets Trump Politics? Fossil Fuel Market Reactions to the Paris Agreement and the US Election.”

The new study reasons that if the Paris climate agreement was judged a success, as widely claimed in the media and elsewhere, the announcement should have spurred sizeable negative returns across fossil fuel stock markets. The impact on coal stocks, for instance, should have been significantly larger than the impact on oil and natural gas stocks given that coal results in significantly more emissions per unit of energy produced. On the other hand, renewables would be expected to react positively to the news. By using statistical methods, the researchers instead found that the Paris Agreement had only moderate effects in these markets.

The authors reason that the lack of a stronger reaction might be due to the agreement already having been discounted by the interested markets. However, one important global event was the surprising outcome of the US presidential election, which was considered positive for coal and other fossil fuels. Using carefully designed methods such as the impulse-indicator saturation – a flexible and robust technique used to detect structural breaks in data spanning over time – the authors then examined market reaction of energy stocks to the election. They found some stronger negative reaction, particularly for renewables globally, but, again, the results for fossils were relatively moderate and perhaps smaller than might be expected – even more so for coal outside the US. 

There was, however, one area where the authors saw an event that seemed to genuinely affect global energy markets: That event was the Chinese decision, in March 2015, to reduce coal consumption. 

Read the full report: Do Markets Trump Politics? Fossil Fuel Market Reactions to the Paris Agreement and the US Election.