Hybrideseminar: Carbon costs and industrial firm performance: Evidence from international microdata

A central concern in climate policy making is that unilateral increases in carbon costs would adversely affect firm performance and competitiveness. This paper evaluates these concerns by providing firm-level evidence on the joint performance effects of carbon policies around the world. We employ shadow prices to capture integral carbon costs and evaluate the impact of carbon cost changes on various performance outcomes using comprehensive international microdata, spanning 32 countries, 15 competitiveness-prone industrial sectors, in the period 2000–2019. On aggregate, we find little evidence of strong negative performance effects, even though employment reductions are statistically significant. However, there is considerable effect heterogeneity. Performance effects appear to be most pronounced in carbon leakage sectors, for small firms, and EU countries. Employment reductions are concentrated in small and capital-intensive firms in leakage sectors, mainly in mining, cement, and basic metals. In large and capital intensive firms, particularly in leakage sectors, we observe a ramping up of investment in response to rising carbon costs. Small firms in leakage sectors improved productivity. In all subsamples, profitability and exit probabilities are hardly affected by carbon costs.