Science and the Stock Market: Investors’ Recognition of Unburnable Carbon

This paper documents the stock market's reaction to a 2009 paper in the Nature journal of science, which concluded that only a fraction of the world's existing oil, gas, and coal reserves could be emitted if global warming by 2050 were not to exceed 2°C above pre-industrial levels. This Nature article is now one of the most cited environmental science studies in recent years. Our analysis indicates that this publication prompted an average stock price drop of 1.5% to 2% for our sample of the 63 largest U.S. oil and gas firms. Later, in 2012–2013, the press “discovered” this article, writing hundreds of stories on the grim consequences of unburnable carbon for fossil fuel companies. We show only a small negative reaction to these later stories, mostly in the two weeks following their publication. This limited market response contrasts with the predictions of some analysts and commentators of a substantial decline in the shareholder value of fossil fuel companies from a carbon bubble. Our paper discusses possible reasons for this discrepancy.