Impact of CO2 emissions reductions on firms' finance in an emerging economy : the case of Czech Republic
Abstract
This paper investigates the relationship between economic and environmental performance with focus on firms in an emerging economy, the Czech Republic, and their CO2 emission reductions. We discuss whether the hypotheses tested for local pollutants that firms emit and firms' finances are relevant for CO2 emissions.
We test the hypotheses on a sample of Czech firms included in the first phase of European Union Emissions Trading Scheme (EU ETS). We observe that introduction of EU ETS did not encourage significant investments in CO2 emissions reduction.
Importantly, the results show that the firms that did invest in CO2 reductions experienced a negative impact on their finance. We argue that this is explained by the drop in the price of allowances on the carbon market in 2006 which resulted in firms receiving less revenue from saved allowances than they had expected.