In a new article by Samson Mukanjari, IIIEE, and Thomas Sterner, University of Gothenburg, have examined the effects of three events with major importance for climate policy on energy sector stocks were studied: the Paris Agreement, the Trump election and presidency, and the Biden election. The research combined event studies with impulse-indicator saturation methods. 

The findings show that these big political events can have major effects on the stock markets. The strongest reactions were for the renewables which benefited from the Paris Agreement and the election of President Biden, but were hurt by the election of President Trump. For fossil fuel industries, the effects were largely the opposite. Despite Trump's efforts to eliminate environmental regulations, his presidency did however witness a decrease in both US coal production and consumption, while natural gas and oil consumption increased. 

The research shows that positive climate policy shocks can boost the stock price of renewable energy firms. Investing in renewable energy companies that benefit from these policies could allow portfolio managers to realize significant gains. Conversely, negative climate policy shocks that lead to (e.g.,) the removal of renewable energy subsidies can lower the value of renewable energy companies and portfolio managers should be prepared to deal with potential losses from such events.

The article concludes that while the impacts of the Paris Agreement and the Biden election on the stock prices of fossil fuel companies are significant, they are not of a magnitude that should instigate concerns about a total collapse of financial systems due to stranded assets. 

Read the article here (open access)