Carbon Dioxide Embedded in Oil and Gas Reserves : Stock Market Assessment in a Context of Global Warming

We assess the informativeness for stock markets of proven reserves of oil and gas, and embedded CO2 in those reserves. Based on a two-step regression approach, we attempt to test the relationship between proven reserves, CO2 embedded in those reserves and stock market value controlling for the selection bias (i.e. the decision of managers to disclose voluntary environmental information about embedded CO2). Results, based on a sample of U.S. and Canadian firms are the following. Proven reserves increase the firm’s value, while embedded CO2 reduces stock market value substantially. Furthermore, the decision of managers to disclose information about embedded CO2 is positively related to analyst following, share price volatility, firm size, and institutional ownership.The current study assesses the long-term incidence of embedded CO2 (in oil and gas proven reserves) on firms’ stock market value, while most studies are focusing on yearly CO2 emissions