Firms' and States' Responses to Laxer Environmental Standards
On June 1, 2017, President Trump announced the United States' withdrawal from the Paris agreement on climate change. Despite this decision, American firms continued investing in low-carbon technologies and some states committed to tougher envi...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/156271552566218095/Firms-and-States-Responses-to-Laxer-Environmental-Standards http://hdl.handle.net/10986/31407 |
| Summary: | On June 1, 2017, President Trump
announced the United States' withdrawal from the Paris
agreement on climate change. Despite this decision, American
firms continued investing in low-carbon technologies and
some states committed to tougher environmental standards. To
understand this apparent paradox, this paper studies how a
weakening of environmental standards affects the behavior of
profit-maximizing firms. It finds that a relaxation of
emission standards (i) may increase firms' incentives
to adopt clean technologies, but not to pollute less; (ii)
may negatively affect industry profitability if it is
perceived as temporary; and, when this is the case, (iii)
the unilateral adoption of stricter standards by large
states may increase the expected profitability of every firm. |
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