The impact of us regional greenhouse gas initiative on firm-level innovation activities and market competitiveness / Md Azizur Rahman

Md Azizur , Rahman (2023) The impact of us regional greenhouse gas initiative on firm-level innovation activities and market competitiveness / Md Azizur Rahman. PhD thesis, Universiti Malaya.

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Abstract

Climate change threatens the future of humanity, primarily driven by rapid industrialization and global competition. The challenge lies in balancing regulatory actions, which can raise costs against obligations to fight emissions, hinder productivity, and slow economic growth. The Emissions Trading Scheme (ETS) provides an effective solution for curbing global carbon emissions. Nevertheless, a prevailing view is that environmental regulations raise firm costs and prevent investment from clashing with expected innovation benefits. Recent observations challenge these notions and argue that well-structured regulations can encourage innovation and help stimulate firm performance. The Regional Greenhouse Gas Initiative (RGGI), active across ten northeastern US states since 2009 to reduce CO2 emissions from the power sector, yields paradoxical outcomes. However, emissions decline within RGGI states while neighboring regions witness the opposite. Moreover, rising temperatures and waning green initiatives underscore our failure to find effective remedies. RGGI's impact on firm-level innovation and market competitiveness remains unexplored, especially considering its fully auction-based ETS structure. This research examines RGGI's influence on firm innovation and market competitiveness, scrutinizing direct and policy-driven effects across regulated and unregulated sectors. Focusing on US-listed electric power sector companies (regulated) and Fortune 500 companies (non-regulated), the research spans 2000 to 2019 for patent timelines. Using a quasi-experimental approach consisting of 'difference-in-difference' and propensity score matching techniques, the investigation reveals the positive impact of RGGI on regulated sector innovation. However, policy spillover into the unregulated sector proves insignificant. Supporting the 'weak' Porter hypothesis (PH) in regulated sectors and negating it in the unregulated sector, RGGI's deployment lacks a statistically significant impact on green innovation in both spheres. Acknowledging the 'strong' PH variant, RGGI enhances market competitiveness in regulated sectors but counteracts this trend in the unregulated sector. Innovation and green innovation enhance US firm competitiveness, yet RGGI's implementation dampens the connection between firm-level innovation and market competitiveness. This study widens insights by disclosing RGGI's effects on innovation and competitiveness, delving into the link between innovation and market prowess among US firms. Contributions abound: empirical evidence emerges for the market-based nature of RGGI, distinguishing it from freely allocated policies like EU-ETS and CN-ETS. Furthermore, the study enriches the policy spillover literature by uncovering innovation spillover in non-regulated sectors. Notably, RGGI's fully auction-based approach significantly boosts market competitiveness among regulated firms, a novel finding in policy evaluation and spillover literature. Additionally, the study contributes to the 'innovation' and 'green innovation' discourse, showcasing empirical proof of US firms' high innovativeness. Intriguingly, RGGI moderates this connection negatively while bolstering it positively for innovative firms, holding implications for their market sustainability. Recommendations stemming from this study extend to RGGI authorities and industry stakeholders, illuminating the policy's implications.

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