Predominant Factors for Firms to Reduce Carbon Emissions. Mark Strutzenberger
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sites, power plants and infrastructure lock in carbon emissions for a long period of time and make a change in the future more difficult. If for instance, a firm now decides to invest in an expensive site using fossil fuels, it is unlikely to radically change its way of production any time soon (Todaro et al., 2021; Tvinnereim, Mehling, 2018). Furthermore, consumers depend on companies to offer them ecological products (Tvinnereim, Mehling, 2018). Additionally, corporations are by far the largest emitters of carbon dioxide (CO2). Even though shares differ among countries, worldwide about 70% of carbon emissions are caused by companies (Kumarasiri, 2017). Enterprises’ traditional goal to maximize shareholder value seems to undermine efforts to lower CO2 output. That’s why more and more governments seek to set economic incentives via subsidies for ecological behaviour and pricing of pollution to make business internalize the cost of carbon emissions (Nippa et al., 2021).
Therefore, this paper focuses on companies’ decisions concerning their carbon emissions to find out if maximizing shareholder value actually contradicts ecology and if governments’ efforts are effective. There are already many papers describing impacts of regulation and other governmental measures such as carbon pricing on the economy, foreign direct investment (FDI), imports, exports and most importantly the environment. There are also some studies assessing the importance of various reasons for a firm to invest in cleaner technology. However, in the context of mitigating CO2 emissions, most scholars are focusing on a specific policy’s effectiveness but few on comparing the factors influencing a corporation’s decision to lower their output. Consequently, the focus in this paper should lie on reasons for enterprises to take action in GHG emissions limitation and assess their importance which also represents the research gap intended to be filled.
The recent study by Nippa et al. (2021) about corporations’ responses to carbon pricing served as a starting point for the research to this literature review. The authors name various internal and external parameters affecting a firm’s choice to reduce carbon output. These are, for instance, the impact of stakeholder pressure, expected regulation, carbon pricing and economic benefits for companies but also retarding factors, like attempts to move operations to so-called pollution havens or their usage of bargaining power to negotiate laxer ruling (Nippa et al., 2021). While their main focus lies on business’ responses, this paper intends to answer the question:
What are the most important factors influencing a firm’s decision whether to reduce carbon emissions?
In order to assess existing studies on the topic and to answer the given research question, three research statements have been put up. The following three statements were evaluated in light of the existing research on companies’ decisions to limit their carbon emissions.
Governmental measures, like subsidies, regulation and carbon pricing, make firms reduce their carbon emissions.
Firms’ bargaining power, corruption and the pollution haven effect render governmental measures ineffective.
Firms take voluntary action to reduce carbon emissions.
The statements were assessed by three stages of research. The first part consisted of a general search of literature in the field of reasons for corporations to behave ecologically or take action for the environment in general.
The second stage of the research included the assessment of determinants identified so far. As many of them are not addressing greenhouse gases specifically but are concerning other aspects of ecological behaviour, like recycling, eco-innovation, investments in sustainable technologies or pollution prevention, they had to be evaluated concerning their validity for the specific context of CO2 emissions reduction. Thus, further literature was reviewed in order to assure that identified factors would hold for the specific context.
The third stage then consisted of assessing whether identified factors were actually of importance. There is obviously a large number of possibly important influences; nevertheless, this paper should not and cannot talk about all of them but has to focus on the most influential ones among them. Some of the less significant factors are still mentioned, yet the focus lies on but a few decisive reasons for an enterprise to actually take action and not on parameters just affecting the firm’s capabilities or readiness to scale down its GHG emissions.
Finally, in the conclusion, the three predominant determinants carbon pricing, economic advantages and stakeholder pressure are discussed. Findings of this paper show that in the governmental domain carbon taxes and emissions trading systems are most decisive for companies. Apart from that risk mitigation, managing stakeholders’ interests and achievable profits thanks to investments in ecology represent the most influential reasons to reduce GHG output. Furthermore, indications, where additional, empirical research is needed, are given.
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