How the European Union renewable energy directive impacts the global energy industry

: evidence from global stock markets

Abstract

This thesis investigates the impact of the European Union's Renewable Energy Directive (RED) on global energy markets, assessing investor response and its implications for the energy industry. The study analyses cumulative abnormal returns of 409 firms, including fossil fuel and renewable energy sectors across Europe, North America, and Asia. An event study methodology is employed to capture market reactions from the proposal to the approval of RED. The findings suggest that the implementation of RED has resulted in significant positive cumulative abnormal returns. This highlights that investors take regulatory changes into account when evaluating climate risks. It is worth noting that, contrary to expectations, the fossil fuel industry experienced a paradoxical positive response after the implementation of RED. This implies that the market recognizes the need for transitioning towards more environmentally friendly practices. The thesis explores the regional impacts of RED, revealing that its effects extend beyond the EU and influence energy firms globally. This research contributes to the discourse on climate risk premiums and the financial implications of green regulation, offering fresh insights into how environmental policies are shaping investment decisions in the energy industry.

Date of Award	7 May 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Zoe Venter (Supervisor)