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 discharge 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 a higher rate in the following years. 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 level on the effectiveness of ETSs, our results raise some concerns about ETSs’ role.