Abstract
This paper examines the role that the U.S. Environmental Protection Agency’s introduction of the Clean Power Plan played in voluntary carbon disclosure by the Global 500 firms during 2011–2015. Results from difference-in-difference-in-differences estimators nested in a two-stage endogenous binary-variable model—which accounts for the correlation between a firm’s participation and intensity of participation—show that U.S.-based firms acted preemptively in anticipation of a more stringent regulatory environment. Regardless of country of origin, among firms making voluntary disclosures, the Clean Power Plan was associated with higher levels of carbon disclosure in firms with favorable management structures and practices involving the agency of corporate management, ceteris paribus. Empirical analysis includes controls for firm size, natural gas prices, sector-specific market pressures, and macro-economic and political economy dynamics. Results are robust to alternative specifications, including a trimmed matching sample, the Heckman selection model, and sector-specific regressions.
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Source: CDP
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Notes
The study period is 2011–2015, which was before President Trump’s election and subsequent policy reversal.
Due to data limitations it is impossible to separately identify the effects of the CPP on non-U.S. firms from common trends that is not part of the CPP but part of the Obama Administration’s larger climate initiatives.
Legal challenges and a new administration ultimately kept the CPP from taking official effect (Adler 2016). Notwithstanding, there was little reason to expect a different regulatory world than the one that was emerging during 2011–2015.
I follow the standard approach in the empirical literature for specifying DD models with multiple time periods, which is to exclude Clean Power Plan (CPP), the dummy that represents the posttreatment or post-CPP period, so as to thwart collinearity with year effects.
Participation fees in the CDP ranges between $975 and $6500, depending on the level of program benefits companies choose. Source: https://www.cdp.net/en/info/admin-fee-faq.
A separate robustness check which includes the 164 firm × year observations (with disclosure scores coded as “0”) shows that the paper’s empirical results are robust to the exclusion of these observations (available upon request).
For example, there were 7 companies that disclosed their carbon emissions to the CDP in 2014 but not in 2015.
A Fisher type panel unit root test (Choi 2001) has been conducted on Carbon Disclosure Score for U.S. firms and non-U.S. firms to confirm that the OLS DD estimator and the nested DD and DDD estimators in the EBV models do not lead to spurious results in the regression analysis.
The United Nation’s database, NAZCA, for tracking climate commitments partners with the CDP as its primary source of carbon management data.
Manager is based on response to CC1.1 (“Where is the highest level of direct responsibility for climate change within your organization?”). The Online Appendix (https://ssrn.com/abstract=3395446) contains a description of this paper’s treatment of missing data.
Target is based on responses to CC3.1 (“Did you have an emission reduction target that was active (ongoing or reached completion) in the reporting year?”).
In this and all calculations of the marginal impacts of participation, I follow the standard approach in the empirical literature. I set the said indicator variables (CPP and USA in this case) to 1, and hold all other variables at their mean and utilize the standard normal distribution. This calculation and all calculations are available upon request.
From Model 3 (Level of Voluntary Carbon Disclosure), estimated coefficients for Manager and CPP × Manager have been summed (5.135 + 9.103) to obtain 14.238.
This is based on the author’s calculations using sales data from Mint Global.
See for example https://unfccc.int/news/us-china-climate-moves-boost-paris-prospects.
See footnote 6 for the CDP’s participation fees. Disclosure at higher levels involves the disclosure of potentially sensitive information, such as information about a firm’s climate change risks, global Scope 1 and 2 emissions, and sources of uncertainty in data collection and calculations (CDP 2017).
Tables A1–A3 can be found in the Online Appendix (https://ssrn.com/abstract=3395446).
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Hsueh thanks Joshua Abbott, Kelly Bishop, Michael Hanemann, Chris Herbst, Nicolai Kuminoff, Jay Shimshack, Andrew Waxman, Daniel Wilson, and participants at the Arizona State University Environment, Resource and Energy Economics Seminar, 2017 ASSA meetings, and the 2018 NBER Summer Institute for excellent comments and suggestions. Won No provided excellent research assistance. All errors are my own.
Appendix
Appendix
See Tables 3, 4, 5, 6, 7, 8 and 9.
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Hsueh, L. Voluntary climate action and credible regulatory threat: evidence from the carbon disclosure project. J Regul Econ 56, 188–225 (2019). https://doi.org/10.1007/s11149-019-09390-z
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DOI: https://doi.org/10.1007/s11149-019-09390-z
Keywords
- Industry self-regulation
- Carbon disclosure
- Difference-in-difference-in-differences
- Clean Power Plan
- Corporate social responsiblity
- Private provision of public goods
- Endogenous binary variable model
- Climate mitigation