Mitigating climate change is one of the major public policy challenges of our time. Under the Paris Agreement, many countries have pledged to reduce carbon dioxide and other greenhouse gas (GHG) emissions in order to limit the global temperature increase. In addition to traditional abatement strategies like carbon pricing and emission standards, policymakers are increasingly requiring companies to disclose information on emissions. However, surprisingly little is known about whether this measure can contribute to a reduction of GHG emissions. To fill this void, BCCP Fellow Aleksandar Zaklan and his co-authors Benedikt Downar, Jürgen Ernstberger, Hannes Rettenbacher, and Sebastian Schwenen examine this topic for a GHG emission disclosure mandate in the UK.
Their empirical strategy exploits the UK Companies Act, which imposed a mandate requiring UK-incorporated listed companies to report GHG emissions in their annual reports. Prior to the mandate, all (listed and non-listed) companies had to gather and report the emissions of their individual installations (e.g., power plants or cement plants) regulated under the European Union Emissions Trading System (EU ETS) to a publicly available register. However, complex corporate structures impeded the mapping of installations in this register to the firms they belong to. Hence, the UK disclosure mandate, by requiring the disclosure of aggregated emission data at the company level, thereby reducing costs for obtaining this information, sought to increase transparency concerning each company’s GHG emissions for all interested parties.
Their results provide evidence of a significant reduction in GHG emissions after the UK Companies Act for treatment group firms relative to control group firms. The effect is sizable in its magnitude –depending on the model– between 17 and 19.5 percent over a three-year period. The emission reduction is observed for both first-time mandatory and already voluntary reporters. However, the effect is more pronounced for first-time mandatory reporters. Additional tests show that the emission reductions occur over several years and are driven by larger emitters with larger savings potentials. The effects are robust to various sample specifications, i.e., installation- and firm-level analysis, alternative control groups, and propensity score matching. Lastly, the authors find that the effect is permanent rather than transitory. They conclude that companies disclosing their GHG emissions is an effective climate policy that should receive more attention from policy makers.
The full paper is available as DIW Discussion Paper 1795 (open access pdf download).