The Effect of the Clean Power Plan on Stock Prices of Utilities in the United States

Environmental regulations have been used for decades to manage pollution. An important and historic step is the Clean Power Plan (CPP), which was announced by President Obama on August 3rd, 2015, and is expected to reduce CO2... [ view full abstract ]

Environmental regulations have been used for decades to manage pollution. An important and historic step is the Clean Power Plan (CPP), which was announced by President Obama on August 3rd, 2015, and is expected to reduce CO2 emissions from power plants by 32 percent below 2005 levels by 2030. Despite the fact that natural resources and human health are priceless, from an economist’s point of view, it is always important to estimate the cost of regulations. Due to the rationality and sensitivity of the stock market, the effects of a regulation will be reflected immediately in stock prices. Therefore, by comparing the stock prices of utilities in the United States throughout the timeline of the announcement of the CPP, which lasts for over two years from the initial announcement to the publication of the final rule, I hope to quantify the impact of the CPP rulemaking on utilities. Such method is called Event Study, which uses stock prices observed over a time period before and after a specific event to analyze the impact of the event on certain firms and sectors.