An Efficiency Perspective on Carbon Emissions and Financial Performance

Arjan Trinks, Machiel Mulder and Bert Scholtens

Ecological Economics, 2020, vol. 175, issue C

Abstract: International policy actions to constrain carbon emissions create substantial risks and opportunities for firms. In particular, production processes that are relatively high emitting will be more sensitive to the uncertain costs of emitting carbon dioxide and might further reflect productive inefficiencies. We employ a productive efficiency model to evaluate firms' carbon emission levels relative to those of best-practice (efficient) peers with comparable production structures. By accounting for total factor productivity and sector-relative performance aspects, this measure of carbon efficiency helps to quantify and rank firms' relative dependence on carbon in the production process. We investigate the impact of carbon efficiency on various financial performance outcomes and evaluate the role of general resource efficiency in explaining these impacts. Using an international sample of 1572 firms over the years 2009–2017, we find superior financial performance in carbon-efficient (best-practice) firms. On average, a 0.1 higher carbon efficiency is associated with a 1.0% higher profitability and 0.6% lower systematic risk. While carbon efficiency closely relates to resource efficiency, it also has distinct financial performance impacts, particularly lowering systematic risk. Overall, our findings suggest that carbon-efficient production can be valuable from both operational and risk management perspectives.

Keywords: Carbon efficiency; Financial performance; Directional distance function; Total factor productivity; Data envelopment analysis (search for similar items in EconPapers)
JEL-codes: D24 D62 G32 M14 Q41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (57)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolec:v:175:y:2020:i:c:s0921800919310675

DOI: 10.1016/j.ecolecon.2020.106632

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