Abstract
This paper analyzes how a firm’s management of greenhouse gas (GHG) emissions affects its economic performance. The theoretical model we derive from Cobb–Douglas production and inverse demand functions predict that in conducting GHG emissions management, a firm will enhance its economic performance because it promotes an increase in demand for its output and improves its productivity. The estimation results, using panel data on Japanese manufacturing firms during the period 2007–2008, support the view that a firm’s GHG emissions management enhances a firm’s economic performance through an increase in demand and improvement in productivity. However, the latter effect is conditional. Although a firm’s efforts to maintain lower GHG emissions improves productivity, efforts to reduce GHG emissions further does not always improve it, especially for energy-intensive firms. Because firms attempting to maintain lower GHG emissions are more likely to improve their productivity, there is a possibility that firms with high GHG emissions can also enhance economic performance by reducing their emissions in the long term, even if additional costs are incurred. In addition, better GHG emissions management increases the demand of environmentally conscious customers because a product’s life cycle GHG emissions in the upper stream of the supply chain influence those in the lower stream, and customers evaluate the suppliers’ GHG emissions management in terms of green supply-chain management.
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Notes
\( {\text{Tobin's}}\,{\text{q}} = \frac{{{\text{market}}\,{\text{value}}}}{{{\text{replacement}}\,{\text{value}}}} = \frac{{{\text{tangible}}\,{\text{assets}} + {\text{intangible}}\,{\text{assets}}}}{{{\text{tangible}}\,{\text{assets}}}} = 1 + \frac{{{\text{intangible}}\,{\text{assets}}}}{{{\text{tangible}}\,{\text{assets}}}}. \) Thus, Tobin’s q − 1 represents the market value of intangible assets (standardized by tangible assets) (Konar and Cohen 2001; Nakao et al. 2007).
Because GHG emissions mostly arise from energy use, we include energy in the model.
We assume that parameter a is replaced by a i .
The sample firms include those that have facilities consuming more than 1,500 kl/year (converted into oil) of energy.
Only the aggregated financial data for power, fuel, and water utilities expense are available.
The Nikkei Environmental Management Survey, published annually by Nikkei Inc., since 1997, evaluates firms’ attempts to establish an organizational structure and functions to implement environmental measures to reduce GHGs, chemical material emissions, and other waste, while improving business efficiency (Nakao et al. 2007).
The government does not release firms’ actual GHG emission data until approximately 2 years after the fact.
Because the dependent variable is the logarithm of net sales over power, fuel, and water utilities expense, we can calculate the (marginal) effect of GHG emissions management using the parameter exponent. Thus, the (marginal) effect through an increase in demand is approximately 1.0 % (per 25 rank increase), and that through an improvement in productivity is approximately 2.8 % (per one group increase), where δ (1) is calculated from the coefficient of the CO2 emissions score divided by (1 − λ). These effects can be calculated similarly in all models.
The (marginal) effect through an improvement in productivity is approximately 1.0 % (per 25 % of CO2 reductions).
Carbon footprint is rooted in the phrase “ecological footprint,” which attempts to describe the total area of land needed to produce some level of human consumption (Matthews et al. 2008).
Honda news release 2012, Available at: http://world.honda.com/news/2012/c120825Greenhouse-Gas-Emissions.
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Acknowledgments
This study was conducted as part of the contract research program “Policy studies of environmental economics” by the Japanese Ministry of the Environment during the period 2009–2011. The authors would like to thank anonymous reviewers for their valuable suggestions and comments on an earlier version of this paper. The usual disclaimer applies.
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Nishitani, K., Kaneko, S., Komatsu, S. et al. How does a firm’s management of greenhouse gas emissions influence its economic performance? Analyzing effects through demand and productivity in Japanese manufacturing firms. J Prod Anal 42, 355–366 (2014). https://doi.org/10.1007/s11123-014-0388-9
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DOI: https://doi.org/10.1007/s11123-014-0388-9
Keywords
- Greenhouse gas emissions management
- Economic performance
- Increase in demand
- Improvement in productivity
- Random-effects instrumental variables model