How carbon allowance prices affect Finnish energy, utilities, basic material, and industrial companies

Abstract

This paper aims to investigate and analyse the impact of the EU Emission Trading Scheme (EU ETS) in the Finnish stock market. This paper will mainly focus on phase three of EU ETS and the analysed companies will be from the energy, utilities, basic material, and industrial sector. These industries were selected based on their participation in the EU ETS scheme. In this study, the observed companies are divided into two different indexes. An index that holds companies that are obligated to purchase their allowances from the auction and the other one consists of companies that receive a free allocation. In this study, we were able to prove that changes in EUA prices can explain the price changes in the observed companies' stock prices. Our results indicate that there is a positive connection between the EUA prices and the index which held companies that we're obligated to purchase their allowance through auction. However, there seems to be no significant relationship between the index that holds companies that are under free allocation and EUAs.