## Mitigating Climate Change at the Firm Level: Mind the Laggards

_IMF Working Papers, November 24, 2023_

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## Bibliographic details
- Authors: Damien Capelle, Divya Kirti, Nicola Pierri, Germán Villegas-Bauer
- Published: November 24, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400258541.001

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### Overview and authorship
- Authors: Damien Capelle, Divya Kirti, Nicola Pierri, Germán Villegas-Bauer
- Publication: IMF Working Papers, Working Paper No. 2023/242
- Date: November 24, 2023
- Pages: 81
- Volume: 2023
- Issue: 242
- DOI: https://doi.org/10.5089/9798400258541.001
- ISBN: 9798400258541
- ISSN: 1018-5941
- Subjects: Carbon tax, Consumption, Environment, Financial institutions, Greenhouse gas emissions, National accounts, Stocks, Taxes
- Keywords: capital vintage, Capital Vintages, Carbon tax, Climate Change, Consumption, emission intensity, emission Intensity, Emissions, Global, Greenhouse gas emissions, management practice, Productivity, R&D expenditure, Stocks, Technology Adoption

### Key findings
- Significant within-industry heterogeneity in environmental performance exists across firms globally and across sectors.
- Part of this heterogeneity is driven by newer capital-embedded technologies and intangible investments that raise productivity.
- Adoption of newer capital-embedded technologies lowers the costs of mitigation policies, as shown by calibrated simulations for several countries.
- There is a trade-off between short-term costs and long-term benefits of subsidies for capital upgrading.

### Model and methodology
- Proposed framework: a multi-sector heterogeneous-firm general equilibrium model.
- Novel elements: the model endogenizes capital-embedded technology adoption and intangible investments as determinants of firm heterogeneity.
- Calibration: simulations calibrated for several countries to match the extent and drivers of firm heterogeneity and to evaluate mitigation policy effects.

### Policy implications and recommendations
- Policies that facilitate adoption of newer capital-embedded technologies can reduce mitigation costs.
- Subsidies for capital upgrading involve a trade-off: higher short-term fiscal or private costs versus long-term benefits through lower mitigation costs and productivity gains.
- Mitigation policy design should account for firm-level heterogeneity and the role of intangible investments in shaping environmental performance.

*IMF Working Paper No. 2023/242*

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_Source: https://www.imf.org/en/publications/wp/issues/2023/11/22/mitigating-climate-change-at-the-firm-level-mind-the-laggards-541713_