Firm-Level Pollution and Membership of Emission Trading Schemes

Abstract

Several firms have joined emission trading schemes in response to the call for corporate climate action. Using a comprehensive international data set on corporate membership of emission trading schemes (ETSs), we find that members of the scheme emit more CO2 than non-participants. This result also holds when exploring the corporate effusion of sulphur and volatile organic compounds (VOCs). The magnitude of this relationship persists even in the long run showing little evidence of a reduction from the firms in polluting the environment. We also find that firms that select to exit the scheme continue to pollute at the same rate in the years following. Firms that enter the scheme for the first time increase their pollution in the following years. Although we identify significant differences at a country and continental on the effectiveness of ETSs, our results raise some concerns about ETSs’ role.

Keywords: Emission Trading Scheme (ETS), Corporate Carbon Emission, Carbon Abatement, Harmful Gases, Decarbonisation.