Conference Agenda

Session
CL 06: Carbon and Mitigation
Time:
Saturday, 19/Aug/2023:
11:30am - 1:00pm

Session Chair: Stefano Ramelli, University of St. Gallen
Location: 6A-33 (floor 6)


Presentations
ID: 1141

Sustainability or Greenwashing: Evidence from the Asset Market for Industrial Pollution

Ran Duchin2, Janet Gao3, Qiping Xu1

1University of Illinois Urbana Champaign, United States of America; 2Boston College; 3Georgetown University

Discussant: Alberta Di Giuli (ESCP)

This paper studies the asset market for pollutive plants. Firms divest their most pollutive plants following environmental risk incidents. The buyers face weaker environmental pressures, and have supply chain relationships or joint ventures with the sellers. Following these divestitures, total and scaled pollution levels do not decline. The sellers earn higher returns when they sell more pollutive plants, and their ESG ratings increase while their regulatory compliance costs decrease after divesting. Overall, the asset market allows firms to redraw their boundaries in a manner perceived as environmentally friendly without real consequences for pollution levels and with substantial gains from trade.

EFA2023_1141_CL 06_1_Sustainability or Greenwashing.pdf


ID: 488

Too Levered for Pigou: Carbon Pricing, Financial Constraints and Leverage Regulation

Robin Döttling1, Magdalena Rola-Janicka2

1Erasmus University Rotterdam; 2Tilburg University

Discussant: Huyen Nguyen (Halle Institute for Economic Research)

We analyze jointly optimal carbon pricing and financial policies under financial constraints and endogenous climate-related transition and physical risks. The socially optimal emissions tax may be above or below a Pigouvian benchmark, depending on whether physical climate risks have a substantial impact on collateral values. We derive necessary conditions for emissions taxes alone to implement a constrained-efficient allocation, and show a cap-and-trade system or green subsidies may dominate emissions taxes because they can be designed to have a less adverse effect on financial constraints. Additionally introducing leverage regulation can be welfare-improving if environmental policies have a direct negative effect on financial constraints. Furthermore, our analysis highlights the positive effect of carbon price hedging markets on equilibrium environmental policies.

EFA2023_488_CL 06_2_Too Levered for Pigou.pdf


ID: 835

Dynamic Carbon Emission Management

Maria Cecilia Bustamante1, Francesca Zucchi2

1University of Maryland; 2European Central Bank, Germany

Discussant: Ole Wilms (Tilburg University)

The control of carbon emissions by policymakers poses the new corporate challenge of developing an optimal carbon management policy. We provide a unified model that characterizes how firms should optimally manage emissions through production, green investment, and the trading of carbon credits, as well as the implications for asset prices. Under a carbon trading scheme, firms adopt precautionary policies such as under-producing compared to a laissez-faire benchmark. Perhaps surprisingly, firms with a large stock of credits are less committed to curbing emissions. Carbon regulation induces firms to tilt towards more immediate yet transient types of green investment as it becomes more costly to comply. Lastly, even if more polluting firms command a higher risk premium, carbon regulation need not reduce firm value.

EFA2023_835_CL 06_3_Dynamic Carbon Emission Management.pdf