Climate Regulation and Emissions Abatement: Theory and Evidence from Firms’ Disclosures

Federica Zeni
Authors registered in the RePEc Author Service: Tarun Ramadorai

No 14155, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We use data from the Carbon Disclosure project (CDP) to measure firms’ beliefs about climate regulation, their plans for future abatement, and their current actions on mitigating carbon emissions. These measures vary both across firms and time in a manner that is especially pronounced around the Paris climate change agreement announcement. A simple dynamic model of carbon abatement with a firm exposed to a certain future carbon levy, facing a trade-off between emissions reduction and capital growth, and convex emissions abatement adjustment costs cannot explain the data. A more complex two-firm dynamic model with both information asymmetry across firms and reputational concerns fits the data far better. Our findings imply that firms’ abatement actions depend greatly on their beliefs about climate regulation, and that both informational frictions and reputational concerns can amplify responses to climate regulation, increasing its effectiveness.

Keywords: Climate change; Climate regulation; Carbon emissions; Dynamic models; Information asymmetry; Reputation; Abatement (search for similar items in EconPapers)
JEL-codes: G31 G38 Q52 Q54 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-bec, nep-ene, nep-env and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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