Unleashing the Carbon Market Revolution and Green Innovation: Assessing the Rggi's Impact on Us Fortune 500 Firms

Abstract

Whilst free allocation-based cap-and-trade policies are criticized for their complexity, grandfathering, and overallocation, paid allocations or fully auction-based policies like the US Regional Greenhouse Gas Initiative (RGGI) are considered more attractive due to their simplicity, easy-to-maintain quotas, greater participatory nature, cost-effectiveness, and revenue-generating potential. This study investigates the impact of RGGI on firm-level green innovation in regulated and non-regulated sectors. Implemented in 2009 across ten northeastern states in the US, RGGI aimed to reduce emissions in the electric power sector and promote environmental protection through energy efficiency, renewable energy adoption, and technology innovation. Using panel data from 2000-2019 and the Difference-in-Difference model, we found that RGGI positively influenced green innovation in regulated sectors, leading to increased efforts toward eco-friendly practices and technological advancements. However, the impact appeared inhibitory in non-regulated sectors. Overall, RGGI's impact on US firms' green innovation was not statistically significant, necessitating further investigation into its effectiveness. Despite achieving targeted CO2 emission reduction, concerns are raised about RGGI's effectiveness. Regulatory agencies must address factors hindering green innovation to increase RGGI’s international appeal as a market-based solution for carbon emissions.

Keywords: Firm's Green Innovation, Regional Greenhouse Gas Initiative (RGGI), US Fortune 500 Companies, Emission Trading System, Difference-in-Difference (DID), Propensity Score Matching based DID (PSM-DID)