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Market Responses to Global Governance: International Climate Cooperation and Europe’s Carbon Trading

Genovese, Federica (2021) 'Market Responses to Global Governance: International Climate Cooperation and Europe’s Carbon Trading.' Business and Politics, 23 (1). pp. 91-123. ISSN 1469-3569

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International environmental cooperation can impose significant costs on private firms. Yet, in recent years some companies have been supportive of international climate agreements. This suggests that under certain conditions environmental accords can be profitable. In this paper I seek to explain this puzzle by focusing on the interaction between domestic regulation and decisions at international climate negotiations. I argue that global climate cooperation hurts the profits of polluting firms if domestic governments do not shield them from international compliance costs. Vice versa, if firms are subject to protective (i.e. insufficiently severe) instruments at home, firms can materially gain from international climate agreements that sustain expectations about their profitability. I test the argument with an event study of the effect of decisions at the UN Framework Convention on Climate Change (UNFCCC) on major European firms that received free carbon permits in the early stages of the European Union Emission Trading Scheme (EU ETS). The analysis suggests that financial markets carefully follow the international climate negotiations, and reward the regulated firms based on the outcome of UNFCCC decisions. The evidence indicates the advantageous interplay between certain types of domestic regulations and international regimes for business. It also shows the perils of privately supported policy for the effectiveness of international public good provision.

Item Type: Article
Uncontrolled Keywords: businesses; climate change; market regulation; global governance; international negotiations
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Government, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 06 Mar 2020 10:26
Last Modified: 06 Jan 2022 14:11

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