DP17207 The Net-Zero Transition and Firm Value: Insights from the Russia-Ukraine War, REPowerEU, and the US Inflation Reduction Act
In response to the Russia-Ukraine war, stocks more exposed to the regulatory risks of the transition to a low-carbon economy performed better, suggesting that investors expect an overall slowdown in this transition. These stock price effects were particularly strong in the US. In Europe, the effects were less pronounced or even opposite. Arguably, market participants initially expected stronger policy responses supporting European renewable energy sources. Investors perceived both the REPowerEU plan and the US Inflation Reduction Act to boost the value of firms with opportunities in the realm of renewable energies, but they also anticipated an increased value of US firms that benefit from a slowdown in the regulation of polluting technologies. Overall, the findings highlight an expected international divergence in the pace of the energy transition, with geopolitical tensions thus threatening the gains made so far in combating the global problem of climate change.