Does the EU Emissions Trading System induce investment leakage? Evidence from German multinational firms

Koch, Nicolas; Mama, Houdou Basse

doi:10.1016/j.eneco.2019.04.018

Cited by 108 publications

(31 citation statements)

References 55 publications

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“…Both Borghesi et al . () and Koch and Mama () find evidence of some investment leakage, respectively, in more trade‐intensive sectors in Italy (more exposed to international competition) and less capital‐intensive sectors in Germany (more mobile or footloose). For a certain subset of regulated firms, Aus dem Moore et al .…”

Section: Discussionmentioning

confidence: 98%

“…In our review, the few studies dealing with investment leakage find statistically significant results that, for the said reasons, deserve special consideration. Both Borghesi et al (2018) and Koch and Mama (2019) find evidence of some investment leakage, respectively, in more trade-intensive sectors in Italy (more exposed to international competition) and less capital-intensive sectors in Germany (more mobile or footloose). For a certain subset of regulated firms, Aus dem Moore et al (2019) find -consistent with the hypothesis of investment leakage -that very little investment in fixed capital was undertaken in response to the EU ETS.…”

Section: Investment Leakage Deserves More Attentionmentioning

confidence: 99%

“…In addition, investment leakage, as this phenomenon is called, results in long‐lasting economic losses. Despite its special relevance, however, only two studies (Borghesi et al ., ; Koch and Mama, ), out of all those that we found, analyse the effects of the EU ETS on regulated firms’ foreign direct investments (FDIs). Conceptually, closely related to the same studies is a third one (Aus dem Moore et al ., ) which looks at the effects of the EU ETS on regulated firms’ holdings of tangible fixed assets, as an (indirect) indicator for industrial relocation.…”

Section: Mapping the Literaturementioning

confidence: 99%

“…Similarly to Borghesi et al . (), Koch and Mama () test for whether the EU ETS affected FDI volumes of regulated multinational firms in Germany as well as the number of their affiliates and of FDI country destinations outside the EU . The DiD approach is applied to a panel of firm survey data (Deutsche Bundesbank) spanning 1999–2013.…”

Section: The Evidencementioning

confidence: 99%

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The Impact of the Eu Emissions Trading System on Competitiveness and Carbon Leakage: The Econometric Evidence

Verde

2020

Journal of Economic Surveys

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This paper carefully surveys the econometric literature that tests for competitiveness effects and related carbon leakage caused by the EU Emissions Trading System (EU ETS). The results of this literature tell us that to date there is no evidence of the EU ETS having had widespread negative or positive effects on the competitiveness of regulated firms, nor is there evidence of significant carbon leakage. However, the paper also identifies three important caveats to this general conclusion. Firstly, the evidence we have still largely refers to the first two trading periods, namely Phases I (2005–2007) and II (2008–2012). Secondly, some heterogeneity of estimated effects is observed, but patterns, notably sectoral patterns, hardly emerge. Thirdly, very little explored is whether the EU ETS has had long‐term effects on the economy via investment leakage or firm dynamics. Further empirical studies investigating these long‐term effects are particularly desirable.

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Section: Discussionmentioning

confidence: 98%

Section: Investment Leakage Deserves More Attentionmentioning

confidence: 99%

Section: Mapping the Literaturementioning

confidence: 99%

Section: The Evidencementioning

confidence: 99%

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The Impact of the Eu Emissions Trading System on Competitiveness and Carbon Leakage: The Econometric Evidence

Verde

2020

Journal of Economic Surveys

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“…international trade 18 . However, a country can outsource carbon emissions to other countries through investment as well 22 . Carbon transfer through investment means that a country reduces its territorial emissions by relocating domestic production to other countries through cross-border investment 23 .…”

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confidence: 99%

Embodied carbon emissions in the supply chains of multinational enterprises

et al. 2020

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Enterprises are at the forefront of climate actions and multinational enterprises (MNEs) engage in foreign direct investment (FDI), allowing them significant influence over the entire supply chain.Yet emissions embodied in MNEs international supply chains are poorly known. Here we trace the carbon footprints of MNEs foreign affiliates and show the gross volume of global carbon transfer through investment peaked in 2011, mainly driven by the decline in carbon intensity. Despite declining carbon footprints of developed country-based MNEs, there has been a significant increase in carbon transfer sourced from the Chinese mainland. We propose an investment-based accounting framework to allocate carbon footprints of MNEs to the investing country. Investment-based accounting of emissions could inform targeted and effective climate policies and actions. For instance, some large MNEs play a crucial role in carbon transfer, therefore their originating country should bear more responsibilities of carbon emission reduction as an investor. [143 words] In 2015, the Paris Agreement set the target of holding this century's global warming well below 2°44 C above pre-industrial levels. However, the sum of current national pledges and companies' commitments to climate mitigation falls short of meeting the Paris goal 1-3 . Global climate change mitigation calls for more active actions from governments, businesses and investors 4 . Currently, enterprises -particularly MNEs 5-7 -are at the forefront of climate action. For instance, thousands of US businesses have declared that they will continue to support climate action and work towards meeting the terms of the Paris Agreement 8 , despite President Trump's announcement that the US will withdraw from the Agreement. Carbon footprint measurement is the first step in reducing carbon emissions 9 . However, the global reach of MNEs makes it more difficult to measure their carbon footprints, especially the carbon footprint of their foreign affiliates, which is also a popular topic of current research 5 . This study attempts to enrich the related literature in the following ways.Here we present a comprehensive study to trace carbon emissions embodied in the supply chains of global MNEs. Existing studies mainly assessed the carbon footprints of MNEs originating in or hosted by a particular country in a certain year, such as China 10-12 or the US 5 . For instance, López et al. (2019) 5 found that in 2009 the carbon footprint of US MNEs' foreign affiliates was greater than that of the territorial emissions of the UK. Different economies around the world may play different roles in global investment networks, which have also been changing over recent years.This study extends the literature by providing time-series and global-level analysis of the carbon footprints of MNEs. We provide two methods, the decomposition method and the hypothetical extraction method (HEM) 13 , to calculate the carbon footprints of MNEs and prove that these two methods share the same results 14 . The results of these ca...

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Do investors care about carbon emissions under the European Environmental Policy?

Mama

Mandaroux

2021

Bus Strat Env

Self Cite

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We explore the extent to which cross-sectional differences in carbon dioxide emissions matter for future valuations of European firms regulated under the European Union Trading Scheme (EU ETS). Counterintuitively, we find that firm-level emissions share a robust concave relationship with future market valuations. Initially, market valuations increase in emissions potentially because emissions are considered essential for normal production processes; however, the valuation premium decreases and becomes negative beyond a threshold of emissions due to looming regulatory and transition risks. Firms in the lower quartile of emissions trade at an average premium of 2.42%, against a 20.78% discount in the upper quartile (the peak is 3.85%). Importantly, the concave relationship obtains only in smaller firms with lower analyst coverage and lower institutional ownership, and the predictive power of emissions is limited to firms with no reported investments in clean technology. Therefore, policymakers might consider promoting the development and diffusion of green technologies.

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Does the EU Emissions Trading System induce investment leakage? Evidence from German multinational firms

Cited by 108 publications

References 55 publications

The Impact of the Eu Emissions Trading System on Competitiveness and Carbon Leakage: The Econometric Evidence

The Impact of the Eu Emissions Trading System on Competitiveness and Carbon Leakage: The Econometric Evidence

Embodied carbon emissions in the supply chains of multinational enterprises

Do investors care about carbon emissions under the European Environmental Policy?

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