The reallocative and heterogeneous effects of cap-and-trade

This paper explores the heterogeneous response of manufacturing firms to the NOx Budget Trading Program (NBP), a large scale cap-and-trade program that was implemented in nineteen states in 2004. Specifically, we examine the differential effect of the program across firms of different ages and sizes...

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Bibliographic Details
Published in:Economics letters 2018-11, Vol.172, p.93-96
Main Authors: Mark Curtis, E., Lee, Jonathan M.
Format: Article
Language:English
Subjects:
Cap-and-trade
Companies
Emission standards
Emissions trading
Employment
Environmental regulation
Environmental regulations
Reallocation
Resource allocation
Trade
Trading
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Summary:This paper explores the heterogeneous response of manufacturing firms to the NOx Budget Trading Program (NBP), a large scale cap-and-trade program that was implemented in nineteen states in 2004. Specifically, we examine the differential effect of the program across firms of different ages and sizes. Results show that while overall employment in polluting industries declines, this decline is driven entirely by incumbent firms and that new firm activity increased following the NBP. The findings provide evidence that, unlike command-and-control programs, cap-and-trade results in reallocation of production from older to younger firms and changes the firm size distribution. •We study the effect of a large-scale cap-and-trade program on manufacturing firms.•Overall employment falls but the effect differs by firm age and firm size.•The employment effect is driven by declines in older and larger firms.•Employment increases in younger and smaller firms.•Unlike command-and-control, cap-and-trade favors newer firms.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2018.08.033