Real Effects of Climate Policy: Financial Constraints and Spillovers

Söhnke Bartram, Kewei Hou and Sehoon Kim

No 15986, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 US 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. In contrast, unconstrained firms do not make such adjustments. Overall, unconstrained firms do not reduce their total emissions while constrained firms increase 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: 2021-03
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Real effects of climate policy: Financial constraints and spillovers (2022)
Working Paper: Real Effects of Climate Policy: Financial Constraints and Spillovers (2018)
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