When does it pay to be green? New perspectives on the link between environmental regulation, environmental performance and financial performance in the context of the EU ETS.

This research project examines the impact of the European Emission Trading Scheme (EU ETS) on firm performance and green investments. The European Union (EU) launched the EU ETS, which can be considered as the cornerstone of the EU climate policy, in 2005. The EU ETS was the first and is to date the biggest international system for trading greenhouse gas emission allowances, covering almost half of the EU’s greenhouse emissions and operating in 31 countries (European Commission, 2013)[1]. The idea of the EU ETS is that carbon-intensive companies have to surrender allowances equivalent to the number of carbon emissions caused by their installations. Companies with excess allowances can sell their surplus allowances on the market and analogously, companies can buy allowances if their abatement price is above the EU permit price (Hoffmann, 2007). The contribution of this research project is threefold. First, we contribute to the limited literature regarding the EU ETS determinants of firm value and investing behaviour (e.g., Jong et al., 2014). Second, we provide more insights into the economic and environmental effectiveness of the system (e.g., Schmidt & Heitzig, 2013). From these insights, important policy implications can be derived. Finally, we add to the literature on the value link with pollution within the context of a mandatory emission trading scheme. This link has up until now mainly been studied in the context of voluntary disclosure programs (e.g., Lee et al., 2013). [1] The EU ETS operates in the 28 EU countries and the 3 EEA-EFTA states (Iceland, Liechtenstein and Norway).status: publishe