N°25-16: The Carbon Cost of Competitive Pressure

Higher exposure to competition – measured by product fluidity – is associated with higher carbon emission intensity. This result is robust to using instrumental variables to obtain exogenous variation in fluidity. The positive relationship between competition and carbon emissions is stronger for firms in areas less concerned about climate change. It is also stronger in areas with weaker social norms. Our results suggest that shorttermism is not the primary driver, as the emissions-competition link is at least as strong for firms with longer-term-oriented shareholders. Our findings suggest that policies promoting competition may be at odds with climate change abatement.