The Impacts of Alternative Policy Instruments on Environmental Performance: A Firm Level Study of Temporary and Persistent Effects

Abstract

We study the effects of various environmental regulations on environmental performance measured as emission intensity. Moreover, we aim to test whether any such effects are persistent or only temporary. Conventional theory predicts that indirect regulations as opposed to direct regulations provide continuous dynamic incentives for emission reductions. Our unique Norwegian firm level panel data set allow us to identify effects from different types of regulations such as environmental taxes, non-tradable emission quotas and technology standards. The data includes information of different environmental regulations, all kinds of polluting emissions, and a large number of control variables for all polluting incorporated firms. Empirically we identify positive and significant effects from both direct and indirect policy instruments. We also investigate whether the regulations provide continuous dynamic incentives that lead to persistent effects. In contrast to what the literature suggests, we find evidence that direct regulations promote persistent effects. Indirect regulations will, on the other hand, only have potential persistent effects if environmental taxes are increasing over time.

Environmental and financial performance in the European manufacturing sector: An analysis of extreme tail dependency

“…In order to capture and explain EP, it is instrumented with two exogenous variables: (i) EU emissions trading scheme (ET S) and (ii) ISO 14001 standards (ISO). ETS and ISO have been retrieved from Datastream and both have been reported in various studies as EP determinants (Quazi et al, 2001;Ellerman and Buchner, 2008;Luo et al, 2012;Horvathova, 2012;Bye and Klemetsen, 2018). 4…”

“…Noteworthy, regulatory pressures can be exogenous to EP (Brunel and Levinson, 2016), and thus we include two instruments (X 2 ), as discussed in section 2.3. The first instrument is the participation of firms in the European emissions trading scheme (ETS) (Bye and Klemetsen, 2018), and the second is the adoption of ISO 14001 standards (ISO) (Quazi et al, 2001). Arguably, time-variant firmspecific instruments can potentially explain abrupt EP changes.…”

Air pollution reduction and climate co-benefits in China’s industries

“…Therefore, to strengthen the co-benefits of environmental and low carbon policies, firm-level analyses are necessary to be conducted to shed light on the source and consequences 29,30 .…”

Symbolic reactions or substantive pro‐environmental behaviour? An empirical study of corporate environmental performance under the government's environmental subsidy scheme

“…Sen () claimed that the pollution tax could increase firms' R&D expenditure, ultimately resulting in the reduction of pollutant emissions (thus improving CEP). Bye and Klemetsen () found that indirect environmental regulations (environmental tax and emission permit trading) can effectively encourage firms to promote CEP.…”