Emission Trading, Firm Behavior, and the Environment: Evidence from French Manufacturing Firms and preliminary results from a survey of Chinese firms
Speaker: Mirabelle Muuls (Imperial College London)
Date: Mar 20, Wednesday, 2019
Time: 12 pm - 1 pm
Venue: Room 1100, Pudong Campus
Abstract:
Market-based instruments of regulation hold the promise of minimizing total compliance costs by letting regulated firms choose how to comply. When regulation is incomplete, regulated firms have an additional margin of choice concerning the degree of compliance. Under these circumstances, opportunistic firm behavior not only minimizes compliance cost but it can also undermine the efficacy of regulation. We analyze this trade-off in the context of regulation aimed at internalizing global environmental externalities that cause climate change. Using administrative data on French manufacturing firms we establish that the EU Emissions Trading Scheme caused treated firms to reduce carbon dioxide emissions by up to 12% relative to untreated firms. This substantial abatement was achieved by switching into (zero-carbon) electricity consumption rather than by down-scaling production. Further, we analyze whether firms complied in ways that would not reduce emissions globally, namely by (i) shifting pollution from regulated to unregulated plants within firm or by (ii) increasing foreign-sourced intermediates to replace domestic production. Our results support the view that regulated firms used the former channel, but there is no evidence that regulated firms imported more intermediates from abroad in order to reduce their emissions.
Some preliminary findings from a study of the Chinese ETS and the response of firms to the regulation will also be presented.
Speaker's Website
Speaker: Mirabelle Muuls (Imperial College London)
Date: Mar 20, Wednesday, 2019
Time: 12 pm - 1 pm
Venue: Room 1100, Pudong Campus
Abstract:
Market-based instruments of regulation hold the promise of minimizing total compliance costs by letting regulated firms choose how to comply. When regulation is incomplete, regulated firms have an additional margin of choice concerning the degree of compliance. Under these circumstances, opportunistic firm behavior not only minimizes compliance cost but it can also undermine the efficacy of regulation. We analyze this trade-off in the context of regulation aimed at internalizing global environmental externalities that cause climate change. Using administrative data on French manufacturing firms we establish that the EU Emissions Trading Scheme caused treated firms to reduce carbon dioxide emissions by up to 12% relative to untreated firms. This substantial abatement was achieved by switching into (zero-carbon) electricity consumption rather than by down-scaling production. Further, we analyze whether firms complied in ways that would not reduce emissions globally, namely by (i) shifting pollution from regulated to unregulated plants within firm or by (ii) increasing foreign-sourced intermediates to replace domestic production. Our results support the view that regulated firms used the former channel, but there is no evidence that regulated firms imported more intermediates from abroad in order to reduce their emissions.
Some preliminary findings from a study of the Chinese ETS and the response of firms to the regulation will also be presented.
Speaker's Website