With firm-level panel data for seven years, this study evaluated the effect of carbon pricing policy and analyzed how firms respond to the carbon price, focusing on Korea's Emission Trading Scheme (ETS). Under the assumption that firms' responses to the carbon price might differ across industries, this study compared the manufacturing and electricity generation sectors. Our panel regression analyses show that the ETS has significant impacts on firms' carbon reduction. However, the carbon reduction mechanisms of firms differ by industrial sector. Firms in the manufacturing sector reduced carbon emissions by improving the energy efficiency of their facilities. On the other hand, those in the electricity generation sector reduced emissions by phasing out the use of fossil fuels and by giving more weight to low carbon-intensive energy sources. These findings imply that carbon pricing works as designed, sending economic signals for firms to decarbonize their economic activities. Furthermore, it works differently (and so effectively) according to the industry's characteristics.
|Publication status||Published - 2022 Mar|
Bibliographical noteFunding Information:
The second column reports the manufacturing sector model whose dependent variable is carbon emission intensity, instead of total carbon emission. The purpose of this model is to confirm the different carbon reduction mechanisms between manufacturing and electricity generation sectors. If the manufacturing firms reduced carbon emission by improving energy efficiency, the effect of the ETS (interaction term between implementation of the ETS and low MAC) on the carbon emission intensity should not exist, as explained in the research question and hypotheses section.7 (Conversely, the significant effect of the ETS on carbon emission intensity should be seen in the electricity generation sector.) In other words, the model in the second column is reported as a falsification test to confirm and support the findings of the model in the first column. The estimation results of the model in the second column show the insignificant impact of the interaction term on carbon emission intensity. Therefore, the results in Table 6 support Hypothesis 1 (After the ETS is implemented, low-MAC firms in the manufacturing sector will reduce the total carbon emission) with statistical significance (p<.01). This finding might be meaningful because it confirms the assertion of prior studies that the carbon price can lead manufacturing firms to improve energy efficiency for carbon emission reduction while maintaining their outputs (Kerr and Newell, 2003; Lah, 2007; Del Río González, 2008).
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All Science Journal Classification (ASJC) codes
- Management, Monitoring, Policy and Law