Publication Type
Working Paper
Version
publishedVersion
Publication Date
6-2024
Abstract
Economists recommend combating climate change with carbon pricing; however, a major block to pricing emissions is concerns about economic costs. This paper examines the impacts of carbon pricing initiatives on the operating performance and market value of publicly listed firms around the world. Using the staggered enactment of carbon pricing initiatives across jurisdictions and a triple difference approach, we find a significant reduction in the profitability and value of carbon-intensive firms relative to low-emission firms after the enactment of carbon pricing policies. The reduction in firm profits is driven by both a decrease in sales growth and an increase in operating costs. The reduction in firm value is driven by both an increase in the cost of capital and a decrease in expected future cash flows. Carbon-intensive firms also cut investments, lay off employees, and hold more cash. Cross-country analyses show a stronger effect for firms headquartered in North America and in countries that rely more on fossil fuel energy. Overall, our findings uncover the large distributional impacts of carbon pricing policies on individual firms and complement prior studies focusing on the macroeconomic effects of such policies.
Keywords
Climate change, carbon pricing, carbon tax, emission trading systems, carbon premium, distributional effects
Discipline
Environmental Sciences | Finance and Financial Management | Sustainability
Areas of Excellence
Sustainability
Publication
HKIMR Research Paper 6/2024
First Page
1
Last Page
43
Identifier
10.2139/ssrn.4851834
Embargo Period
3-24-2025
Citation
DUAN, Tinghua; LI, Frank Weikai; and ZHANG, Hong.
The effect of carbon pricing on firm performance: Worldwide evidence. (2024). HKIMR Research Paper 6/2024. 1-43.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7687
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.2139/ssrn.4851834
