Real effect of the US Green New Deal

Purpose The US Green New Deal (GND) is a proposal calling for political action to tackle climate change. Its aim is to adopt policies that support the achievement of carbon neutral; however, it has encountered significant obstacles in being passed as legislation. Some of this resistance is based on concerns relating to the potential consequences of climate actions on asset values. Design/methodology/approach Following Barraclough et al. (2013), this study uses option prices of fossil fuel firms to estimate the probability of GND passage across four voting events: the 2019 GND proposal, the 2021 Build Back Better Act (BBBA) and the 2022 Inflation Reduction Act (IRA) in Senate and House votes. Findings The estimated passing probabilities for the GND, BBBA, IRA (Senate) and IRA (House) are 46.74%, 49.84%, 48.89% and 41.16%, respectively. The average value effect is negatively significant at −17.87% (US$−1.83bn), −5.10% (US$551.81m), −15.08% (US$−2.73 bn) and −11.66% (US$−2.65 bn), respectively, for four events. The average news effect is positively significant at 6.28% (US$533.48m), 2.27% (US$254.43m), 7.13% (US$1.31 bn) and 5.23% (US$1.15 bn), respectively, for four events. Furthermore, I find that the value effects of the proposal are more pronounced for fossil fuel firms with higher carbon emissions. Originality/value Traditional event studies estimate the ex post effect of an event using abnormal returns, whereas this research argues that the market anticipates the event's impact, necessitating consideration of the ex ante effect as well.