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Heard the news? Environmental policy and clean investments

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  • Noailly, Joëlle
  • Nowzohour, Laura
  • van den Heuvel, Matthias
  • Pla, Ireneu

Abstract

We build the first news-based index of US environmental and climate policy and examine how it relates to clean investments. Extracting text from ten leading US newspapers over the last four decades, we use text-mining techniques to develop a granular news index of US environmental and climate policy (EnvP) over the 1981–2019 period. Furthermore, we develop a set of additional measures, namely an index of sentiment on environmental policy, as well as various topic-specific indexes. We validate our index by showing that it correctly captures trends and peaks in the evolution of US environmental and climate policy and that it has a meaningful association with clean investments, in line with environmental regulations supporting growing opportunities for clean markets. In firm-level estimations, we find that our index is associated with a greater probability of receiving venture capital (VC) funding for cleantech startups and reduced stock returns for high-emissions firms most exposed to environmental regulations. At the aggregate level, we find in VAR models that a shock in our news-based index of renewable energy policy is associated with an increase in the number of clean energy VC deals and in the assets under management of a benchmark clean energy exchange-traded fund.

Suggested Citation

  • Noailly, Joëlle & Nowzohour, Laura & van den Heuvel, Matthias & Pla, Ireneu, 2024. "Heard the news? Environmental policy and clean investments," Journal of Public Economics, Elsevier, vol. 238(C).
    • Handle: RePEc:eee:pubeco:v:238:y:2024:i:c:s0047272724001269
    DOI: 10.1016/j.jpubeco.2024.105190
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    Cited by:

    1. Campiglio, Emanuele & Lamperti, Francesco & Terranova, Roberta, 2024. "Believe me when I say green! Heterogeneous expectations and climate policy uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 165(C).
    2. Joelle Noailly, 2022. "Directing innovation towards a low-carbon future," WIPO Economic Research Working Papers 72, World Intellectual Property Organization - Economics and Statistics Division.
    3. Joëlle Noailly ; Laura Nowzohour; Matthias van den Heuvel, 2022. "Does Environmental Policy Uncertainty Hinder Investments Towards a Low-Carbon Economy?," CIES Research Paper series 74-2022, Centre for International Environmental Studies, The Graduate Institute.
    4. Matthias van den Heuvel & David Popp, 2022. "The Role of Venture Capital and Governments in Clean Energy: Lessons from the First Cleantech Bubble," CESifo Working Paper Series 9684, CESifo.
    5. Mohammad Enamul Hoque & Sourav Batabyal, 2022. "Carbon Futures and Clean Energy Stocks: Do They Hedge or Safe Haven against the Climate Policy Uncertainty?," JRFM, MDPI, vol. 15(9), pages 1-11, September.
    6. Loyson, Philipe & Luijendijk, Rianne & van Wijnbergen, Sweder, 2023. "The pricing of climate transition risk in Europe's equity market," CEPR Discussion Papers 18289, C.E.P.R. Discussion Papers.
    7. Philippe Loyson & Rianne Luijendijk & Sweder van Wijnbergen, 2023. "The pricing of climate transition risk in Europe’s equity market," Working Papers 788, DNB.
    8. Wang, Lu & Wu, Jiangbin & Cao, Yang & Hong, Yanran, 2022. "Forecasting renewable energy stock volatility using short and long-term Markov switching GARCH-MIDAS models: Either, neither or both?," Energy Economics, Elsevier, vol. 111(C).
    9. Angelico, Cristina, 2024. "The green transition and firms' expectations on future prices: Survey evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 221(C), pages 519-543.

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    More about this item

    Keywords

    Environmental policy; News and media; Text-mining; Machine learning; Clean technologies; Investments; Venture capital; Stock returns;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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