Hanyi Wang (University of California, San Diego) will present her paper “Beyond Borders: The Impact of Embodied Carbon Policy Costs on Industrial Firm Performance” on February 2nd at 11:00 AM, room QA406.
While policymakers generally regard carbon pricing as effective and efficient, the average price of emissions worldwide remains low. A major concern is that unilateral enhancement of carbon policy could negatively impact firms’ competitiveness and performance. This paper investigates the impact of carbon policy on industrial firm outcomes in Europe, introducing a novel measure of embodied carbon policy costs that incorporates multi-region input-output linkages. In contrast to prior studies that have found limited effects from direct carbon policy costs, the inclusion of indirect costs via the global value chain leads to findings here that include a decrease in firm employment and output and an increase in total factor productivity and investment. These impacts tend to be more pronounced for small firms and for capital-intensive firms. Finally, a novel test for input substitution in this context estimates the extent to which carbon policy costs drive European industrial sectors to source inputs from countries lacking carbon regulations.