Columbus, Ohio – A new study finds that multinationals with headquarters in countries with stricter environmental policies tend to locate their polluting plants in countries with more lax regulations.
While countries may hope that their regulations reduce emissions of carbon dioxide and other greenhouse gases, these findings show that these policies could lead to a “carbon leakage” to other countries, said Isaac Ben-David, study co-author and professor of finance. . At The Ohio State University Fisher School of Business.
“Companies strategically decide where to locate their production based on current environmental policies, and the result is that they are polluting more in countries with lax regulations,” said Ben-David.
“This highlights the importance of collective action around the world to combat climate change, given the global scale of corporate operations.”
The study was recently published online in the journal Economic policy.
The researchers used a new data set covering 1970 large public companies with headquarters in 48 countries and CO2 emissions in 218 countries from 2008 to 2015. The database was provided by CDP, a nonprofit previously known as the Carbon Disclosure Project.
“What makes this dataset unique is that we can monitor the CO2 emissions of every multinational company in every country in which it operates,” said Ben-David.
“This provides direct evidence of the impact of environmental policies and actual CO2 emissions for each company at the country level.”
The researchers also used rankings from the World Economic Forum that rated the strength of each country’s environmental policies on a scale from 1 (worst) to 7 (best).
Ben-David said the new study results do not mean that stricter environmental regulations have no impact whatsoever on global emissions. The results indicate that strict policies are still associated with a partial, but positive, effect on reducing overall global pollution.
For example, an increase in environmental policy score from China (2.1, indicating weaker regulations) to Germany (5.5, stronger regulations) is associated with a 44% decrease in global emissions.
But it is also associated with a 299% increase in foreign emissions compared to the companies’ home countries.
“If pollution becomes more difficult in the parent company’s country, the companies will move some of that pollution activity elsewhere,” said Ben-David.
The study examined whether stricter policies “pushed” companies to pollute elsewhere or lax regulations “pulled” companies into countries where pollution was easy.
“We found that the results were primarily driven by environmental policies in the home country, not by opportunities for pollution elsewhere,” he said. “The effect of ‘pushing’ was more than the effect of ‘pulling’.”
Not surprisingly, it is firms in the most polluting industries that are most likely to respond to strict policies in their home countries by locating pollution activities elsewhere.
Overall, most of the carbon dioxide is released in the average parent company’s country, but the share of household emissions has decreased dramatically over time from 72% in 2008 to 57% in 2015, the researchers found.
In addition, the number of countries in which medium firms were polluted increased from six to nine during the study period.
“Environmental regulations in every country reduce global carbon dioxide emissions to some degree, but they also have this negative side effect of pushing pollution to other countries,” said Ben-David.
“Countries need to cooperate if they really want environmental policies to have the strongest impact.”
The study’s co-authors are Yeejin Jang from the University of New South Wales. Stephanie Klimeer from the University of Maastricht, The Open University and Stellenbosch University; Michael Viehs of the European Center for Sustainable Finance and Federated Hermes International.
Contact: Isaac Ben-David [email protected]
Written by Jeff Grabmeyer, 614-292-8457; [email protected]
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