Concept

Fossil Fuel Beta

Summary
Fossil Fuel Beta (FFß) measures the percent change in excess (market-adjusted) stock returns for every 1 percent increase in fossil fuel prices. For example, if a company (or industry) has an FFß of –0.20, then a 1 percent increase in fossil fuel prices should produce, on average, a 0.2% decline in the firm's stock price over and above the impact arising from fossil fuel price swing on the stock market as a whole. (Conversely, a 1 percent decrease in fossil fuel prices should produce, on average, an equivalent increase in stock price.) Converting the FFß into a hypothetical ‘Earnings per share-equivalent’ based on a fixed percent change in fossil fuel prices, it is possible to compare earnings-at-risk for individual companies with their competitors, or even industries with each other. Rationale Three common fossil fuels — coal, petroleum and natural gas — produce more than four-fifths of all carbon dioxide (CO2) emissions. Achieving meaningful reductions in greenhouse gas
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