Abstract
When do firms oppose international climate policy? Existing work often assumes that firms disapprove of climate regulation due to the immediate costs of compliance. We claim that if policy is implemented gradually, private preferences for climate policy vary as a function of its progressive stringency. That is, supportive views may rise in the initial phase of the policy, while opposing views may emerge as the policy becomes more stringent. We also argue that emissions of individual companies, as well as emissions levels in their respective sectors, influence corporate positions on these two dimensions. We test our argument with new corporate survey data on the European Union Emission Trading Scheme (EU ETS). We find that firms’ views on the performance of the EU ETS vary based on whether they concentrate on the policy’s current state or its future, more stringent development. Moreover, we find that individual firm and sectoral emissions correlate with support for the early-stage, more lenient version of the ETS, but that high-emission firms are more interested in disinvesting and relocating if the ETS becomes stricter. Our findings imply that both firm and sectoral organization can constrain environmental regulation, and that domestic compensation, especially at early stages, can have important effects on the continuity of climate policy.
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Notes
The Guardian. 2015. More Big Businesses Push For Stricter Environmental Regulations. http://www.theguardian.com/sustainable-business/2015/feb/04/business-manifesto-sustainability-guidelines-climate-policy.
Carbon trading has arguably stimulated more disagreements than less flexible top-down measures, such as a carbon tax, or more discretionary measures, such as voluntary carbon standards.
In the words of Meckling (2011), “to some industries, such as the oil, electricity, and energy-intensive manufacturing ones, engagement with climate policy is about managing and containing regulatory risk. Other industries including low-carbon technology producers, financial services providers, and investors can seize opportunities under a market-based climate regime” (p. 23).
Note that our discussion purposefully ignores the preferences that firms may have for implementing no ETS at all. For the European ETS the possibility of abandoning altogether the carbon market is unrealistic. Nonetheless, this is not an irrelevant policy equilibrium in other contexts, and further work may want to elaborate on this potential alternative outcome.
Specifically, up to three e-mail addresses for each covered emitting facility are listed. Participants receive a free copy of the resulting survey report as an incentive to complete the survey.
See Eurostat data on EU structural business statistics at http://ec.europa.eu/eurostat/statistics-explained/index.php/Structural_business_statistics_overview.
See Eurostat data on breakdown of economic activities in EU total employment at http://ec.europa.eu/eurostat/web/products-eurostat-news/-/DDN-20171024-1?inheritRedirect=true.
Using the post-2008 surveys is also reasonable because it allows us to concentrate on firms’ positions during the first commitment period of the Kyoto Protocol and after the recent financial crisis. We need to ignore the 2007 survey because it lacks information on the companies’ countries, while the 2008 survey lacks information on sectors. We also ignore the 2014 survey responses because, although we received the data, some questions had different wordings and we do not possess several control variables.
These are: Austria, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden, and the United Kingdom. See Fig. A.1.
Population data used in this table was gathered from the European Environmental Agency, 2016. See http://www.eea.europa.eu/data-and-maps/indicators/greenhouse-gas-emission-trends-5/assessment-1, Fig. 4, and http://www.eea.europa.eu/publications/trends-and-projections-2013, Fig. 2.1 (p. 21).
See European Commission brief on the EU ETS at https://ec.europa.eu/clima/sites/clima/files/factsheet_ets_en.pdf.
See Eurostat data on total GHG emissions for 1990-2015 at http://ec.europa.eu/eurostat/statistics-explained/index.php/Greenhouse_gas_emission_statistics.
One may worry that the different wording of these survey items – i.e., that some require comments on statements and some require answers to questions – may affect the nature of the responses. Consequently, we may be pooling subjective and objective responses rather opinions on different temporal aspects of the EU ETS. While we cannot completely rule out this concern, we think all responses are in part subjective because they all require an interpretation of firms’ ideal policy levels and preferred regulatory uncertainty. Also, in the open comment answers (formulated as “If needed, please expand on your answers here”) we find no evidence that the questions were systematically interpreted as objective versus subjective questions. For example, to the presumably more objective question on the possibility of relocation, a 2012 respondent commented, “I think carbon leakage is a daily threat.” Similarly, to the question on the importance of CO2 price for future investments, another respondent wrote, “I suspect we will be heavily influenced in the future”. These responses appear as subjective rather than factual statements.
In terms of how sensitive the manipulated variables are to the cut-points, analyses in the Online Appendix available at this journal’s website (Table A.4) show that the five variables measured on the original scales have similar patterns (i.e., are loaded on the same factors) as the dichotomized variables. Similarly, additional regression analyses (Table A.5) indicate that our findings are not sensitive to the cut-points of the binary variables, as we obtain similar results with the outcomes measured on the original scales.
The WRI data can be retrieved here: http://cait.wri.org/historical/. For the year 2013, we used the equivalent indicators reported in the International Energy Agency 2015 Statistics, https://www.iea.org/publications/freepublications/publication/CO%24_2%24EmissionsFromFuelCombustionHighlights2015.pdf(p. 66).
The ULC is calculated as the ratio of total labour costs to real output, and it is expressed as the ratio of total labour compensation per hour worked to output per hour workfed. See OECD 2015 data at https://stats.oecd.org/Index.aspx?DataSetCode=PDBI_I4#.
We assigned ULC of oil and power to Power and Heat, Metals, and Oil and Gas; ULC of manufacture to Pulp and Paper, Cement, Lime and Glass, and Chemicals; and ULC of transportation and food to Aviation and Food Industry.
Armingeon et al. (2015).
Genovese et al. (2017).
OECD-IEA Fossil Fuel Support Data. 2015. http://www.oecd.org/site/tadffss/.
Note that stringency in this case does not necessarily reflect the price level, but rather the share of auctioned permits and the perceived likelihood that the ETS will be around for the long haul, as signaled by the European Commission’s long-term target planning.
The cross-loadings measured by the uniqueness parameter (ψ) indicate for each variable the proportion of the individual variance that is associated with their factors. As the results indicate, opinions on cost-effectiveness and relocation are more uniquely associated with the two factors, respectively. This further suggests that the data are divided on two types of positions, which distinctly reflect the dual nature of opinions towards the EU ETS.
One may also wonder whether hierarchical models may be more appropriate given the multilevel structure of our data. Exploratory tests suggest that the hierarchy does not capture much random variance, and neither countries nor sectors seem to have specific group-level effects on firms’ opinions. Moreover, our dataset features similar sample sizes across countries. We refer to these additional findings below.
Again, the changes over time in attitudes toward the ETS in Figs. 1 and 2 support the reasoning that larger firms more positively related to the EU ETS in earlier years, while smaller firms more positively saw the EU ETS from 2012 onwards. This trend could conceivably be related to falling carbon prices; however, it can be shown that permit prices do not play a significant role in explaining attitudes toward the ETS in our data.
Random-effect models that calculate the variance at the country level and at the country-sector level show that neither country nor sector intercepts capture much of the residual variance, and that the effects of the emission indicators remain qualitatively similar to the effects estimated in the main models. Furthermore, in additional regressions we transformed the composite scores into dichotomized variables where we assign 1 to positive scores (> 0), and 0 otherwise. We find that the firm- and sector-level emissions have consistent effects if we analyze these scores with probit and linear models. See Tables A.6 and A.7 in the online Appendix available at this journal’s website.
See Table A.12 in the online Appendix available at this journal’s website.
See Table A.13 in the online Appendix available at this journal’s website.
See Table A.14 in the online Appendix available at this journal’s website.
On the maturity question, by contrast, there is no difference across the groups.
See Table A.17.
Later, from 2014 onwards, the respondents were asked more generally to evaluate cap-and-trade as a climate policy tool in a separate part of the survey, using the question ”Please share your view on cap-and-trade as a policy instrument for emission abatement.” To avoid issues related to wording variation and to stay consistent with the years covered by our observational data, we focus only on the 2007-2013 texts.
Note that the the 944 meaningful open answers are not representative of the full universe of EU firms, but that there is substantive structural variation in the firms to which these comments correspond. Furthermore, note that the volume of open comments analyzed here is similar in magnitude to the number of open answers studied in Roberts et al. (2014).
See Table A.18.
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Acknowledgments
We thank Stig Schjølset and Anders Nordeng at Thomson Reuters for data access, and Roman-Gabriel Olar and Luis Everdy Mejia for research assistance. We are also grateful to Michaël Aklin, Jacob Copas, Iza Ding, Julia Gray, Megan Mullin, Jakob Skovgaard, Paul Tobin, Simon Weschle, the editor Axel Dreher, two anonymous reviewers, and the APSA 2015, EPSA 2016, IPSA 2016 and the 2017 InoGov Durham workshop participants for very useful feedback.
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Genovese, F., Tvinnereim, E. Who opposes climate regulation? Business preferences for the European emission trading scheme. Rev Int Organ 14, 511–542 (2019). https://doi.org/10.1007/s11558-018-9318-3
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DOI: https://doi.org/10.1007/s11558-018-9318-3