| Session | ||
Track T4-3: Climate Finance: Risk and Regulation
| ||
| Presentations | ||
Opening the Brown Box: Production Responses to Environmental Regulation 1London Business School; 2Jesse H. Jones Graduate School of Business, Rice University We study production responses to emission capping regulation on manufacturing firms. We find that firms lowered their pollution as they transitioned from self-generated to externally sourced electricity, shifted towards producing less coal-intensive products, and increased their abatement expenditures. Firms preserved profitability by increasing their production towards higher-margin products. However, firms in highly polluting industries produced fewer products, and in the aggregate, leading to lower product variety, higher markups, an altered firm-size distribution, and lower business formation. Our findings highlight both the mechanisms behind how mandated pollution reduction can be effective and its costs, suggesting a loss in agglomeration externalities.
| ||