Real effects of climate policy: Financial constraints and spillovers

Söhnke Bartram, Kewei Hou and Sehoon Kim

Journal of Financial Economics, 2022, vol. 143, issue 2, 668-696

Abstract: We document that localized policies aimed at mitigating climate risk can have unintended consequences due to regulatory arbitrage by firms. Using a difference-in-differences framework to study the impact of the California cap-and-trade program with U.S. plant-level data, we show that financially constrained firms shift emissions and output from California to other states where they have similar plants that are underutilized. By contrast, unconstrained firms do not make such adjustments. Overall, unconstrained firms do not reduce their total emissions, whereas constrained firms increase their total emissions after the cap-and-trade rule, undermining the effectiveness of the policy.

Keywords: Climate policy; California cap-and-trade; Financial constraints; Internal resource allocation; Regulatory arbitrage; Spillover effects (search for similar items in EconPapers)
JEL-codes: G18 G31 G32 Q52 Q54 Q58 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (87)

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Related works:
Working Paper: Real Effects of Climate Policy: Financial Constraints and Spillovers (2021)
Working Paper: Real Effects of Climate Policy: Financial Constraints and Spillovers (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:143:y:2022:i:2:p:668-696

DOI: 10.1016/j.jfineco.2021.06.015

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