Event study reveals mixed stock returns across US and European firms under CBAM, indicating that carbon tariffs function as both compliance burdens and protective shields.
This paper examines equity market reactions to the enforcement of the EU Carbon Border Adjustment Mechanism (CBAM) on January 1, 2026. Using an event-study approach on a sample of S&P 500 and STOXX Europe 600 firms, we document three main findings. First, CBAM enforcement is associated with positive aggregate abnormal returns, consistent with the resolution of policy uncertainty. Second, both European firms and CBAM-exposed sectors experience lower post-event returns on average, reflecting compliance costs. Third, and most importantly, the interaction between geography and CBAM exposure shows that the impact of exposure is relatively more favorable for European firms compared to their U.S. counterparts. These results suggest that CBAM is perceived by financial markets as both a carbon burden and a competitive mechanism, with effects concentrated in the short run.
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Salvatore La Barbera (2026) studied this question.
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