Firms' and states’ responses to laxer environmental standards

Tito Cordella and Shantayanan Devarajan

Journal of Environmental Economics and Management, 2019, vol. 98, issue C

Abstract: On June 1, 2017, President Trump announced the United States' withdrawal from the Paris agreement on climate change. Despite this decision, American firms continued investing in low-carbon technologies and some states committed to tougher environmental standards. To understand this apparent paradox, this paper studies how a weakening of environmental standards affects the behavior of profit-maximizing firms. It finds that a relaxation of emission standards (i) may increase firms’ incentives to adopt clean technologies, but not to pollute less; (ii) may negatively affect industry profitability if it is perceived as temporary; and, when this is the case, (iii) the unilateral adoption of stricter standards by large states may increase the expected profitability of every firm.

Keywords: Environmental policies; Technology adoption; Paris agreement; Subnational regulation; Policy reversal (search for similar items in EconPapers)
JEL-codes: F53 H75 L51 Q54 Q55 Q58 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:98:y:2019:i:c:s0095069619304267

DOI: 10.1016/j.jeem.2019.102275

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