Abstract
The thesis examines the effect of carbon disclosure and risk on stock returns in the Australian equity market, the connectedness between the Australian climate-related markets (carbon and green certificate markets), and the impact of the climate-related markets on emissions. Commencing with a comprehensive review of the evolution of Australian climate policies and the development of the Australian equity and carbon and green certificate markets since 2001, Chapter 2 sets the stage for a multifaceted investigation in Chapter 3, Chapter 4 and Chapter 5.
From a macro perspective across all sectors in Australia, Chapter 3 examines the impact of carbon disclosure and risk on asset pricing within the Australian equity market. Over the period of 2013-2023, the disclosure mandate and voluntary disclosure decisions are positively related to the returns, perhaps due to lower information uncertainty risk. This Chapter also documents a positive premium associated with voluntarily-disclosed absolute (log) emissions but negative premiums from voluntarily- and mandatorily- disclosed emissions intensity distributed through lagged months over a year. Lastly, it shows that an investor can potentially harvest a significant net gain from a strategy that longs non-disclosing firms with estimated emissions and shorts mandatorily-disclosing firms.
Moving to the micro perspective within the energy sector, the thesis continues to evaluate the pricing efficiency (in Chapter 4) and environmental effectiveness (in Chapter 5) of various climate-related pricing mechanisms in Australia. Chapter 4, which explores the connectedness between climate-related markets, reveals an insignificant connectedness between the carbon offset (ACCU) and green certificate (REC) markets, suggesting resilience against distortions in pricing mechanisms from a potential linking channel and indicating their viability as portfolio diversification assets. Moreover, the National Electricity Market (NEM) is a net risk receiver from the ACCU and REC markets, with South Australia's regional electricity market (REM) notably contributing to this total risk influx due to its high renewable energy penetration.
Chapter 5 analyses the association between climate-related markets and economy-wide emission. It reveals a positive effect on green certificate returns (notably REC) from changes in emissions and emissions intensity before the Carbon Pricing Mechanism (CPM) existed (measured in a monthly relationship), and during and after the existence of CPM in a weekly relationship, suggesting that the CPM may have accelerated the response mechanism of the REC market to the underlying drivers. This Chapter also identified a negative effect of the REC returns on the emission but not on the emission intensity over different horizons, suggesting that the REC pricing mechanism is limited in mitigating the emissions intensity of the energy dispatched. Lastly, there is a material substitutional effect of the CPM on the REC mechanism in a monthly relationship during the CPM period between the change in emissions intensity and the REC returns.