Emission permits and firms' environmental responsibility

Stefano Clo', Gianluca Iannucci and Alessandro Tampieri

Working Papers - Economics from Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa

Abstract: This paper examines the interplay between firms' choices regarding Environmental Corporate Social Responsibility (ECSR) activities and the implementation of an emission trading system (ETS) within an oligopoly industry. We determine the equilibrium and stability conditions of an endogenous industry configuration where profit-seeking (PS) and ECSR firms coexist in the presence of an ETS policy. We derive some testable findings: first, the ECSR strategy is favoured by the increase in consumers' environmental concern, irrespective of any policy implementation. Second, the number of ECSR firms increases with the implementation of the ETS policy, provided that the number of allowances is sufficiently high. Finally, the number of ECSR firms decreases with the stringency of the ETS policy. We test the theoretical findings with a longitudinal dataset spanning the years 2002-2021, by evaluating how the number of ECSR firms in several industries and countries is affected by the introduction of the ``EU ETS scheme'' in 2005. Our empirical results are consistent with what is expected from the theory.

Keywords: Emission trading scheme; Mixed oligopoly markets; Emission reduction investment (search for similar items in EconPapers)
JEL-codes: C73 H23 L13 L21 M14 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2024
New Economics Papers: this item is included in nep-ene, nep-env and nep-ind
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