NBER Working Paper No. 25063
Despite awareness of the detrimental impact of CO2 pollution on the world climate, countries vary widely in how they design and enforce environmental laws. Using novel micro data about firms’ CO2 emissions across countries, we document that firms headquartered in countries with strict environmental policies perform their polluting activities abroad in countries with relatively weaker policies. These effects are stronger for firms in pollution-intensive industries and firms with poor corporate governance characteristics. Although firms with domestic strict environmental policies are more likely to export pollution to foreign countries, they nevertheless emit less overall CO2 globally.
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Document Object Identifier (DOI): 10.3386/w25063