Climate change and greenhouse gas emissions were first recognized globally as pressing environmental issues at the 1992 United Nations Framework Convention on Climate Change (UNFCCC). This concern intensified following the 1997 United Nations Kyoto Protocol and the mounting body of scientific evidence highlighting the effects of climate change. Climate change issues are becoming the most financially significant environmental issues facing companies today. Consequently, investors should be expected to modify the way they value companies, considering not only earnings and dividends, but also firms’ long-term environmental performance and the impact of climate change on specific firms and industries. Nevertheless, little research has explored the extent to which capital markets impound this issue. This study examines the interdependent relationship between the Australian oil and gas industry and climate change, and the subsequent effect of this relationship on the market value of the oil and gas industry. This industry is crucial to the Australian economy and is simultaneously responsible for a substantial portion of carbon dioxide emissions. The carbon dioxide emissions are one of the primary greenhouse gas emissions responsible for global warming that affect the world’s long-term climate. Climate change brings risks and opportunities for the oil and gas industry. Due to its carbon-intensive products, the oil and gas industry is uniquely exposed to economic and competitive risks from carbon-mitigation policies. The risks include unpredictable shifts in demand and impacts on the supply chain, change in products, constraints to access to new reserves. Climate-related disasters present business risks as they can affect the earnings, and hence the market value of the oil and gas industry. On the opportunity side are options for emissions trading, new, alternative markets and product opportunities to be explored, which in turn can affect the market value of oil and gas companies.
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