IMF Working Papers

Mitigating Climate Change at the Firm Level: Mind the Laggards

Author/Editor:

Damien Capelle ; Divya Kirti ; Nicola Pierri ; German Villegas Bauer

Publication Date:

November 24, 2023

Electronic Access:

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Summary:

Using self-reported data on emissions for a global sample of 4,000 large, listed firms, we document large heterogeneity in environmental performance within the same industry and country. Laggards—firms with high emissions relative to the scale of their operations—are larger, operate older physical capital stocks, are less knowledge intensive and productive, and adopt worse management practices. To rationalize these findings, we build a novel general equilibrium heterogeneous-firm model in which firms choose capital vintages and R&D expenditure and hence emissions. The model matches the full empirical distribution of firm-level heterogeneity among other moments. Our counter-factual analysis shows that this heterogeneity matters for assessing the macroeconomic costs of mitigation policies, the channels through which policies act, and their distributional effects. We also quantify the gains from technology transfers to EMDEs.

Series:

Working Paper No. 2023/242

Subject:

Carbon tax Consumption Environment Financial institutions Greenhouse gas emissions National accounts Stocks Taxes

Frequency:

regular