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Firm's reduction of greenhouse gas emissions and economic performance: analyzing effects through demand and productivity

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Author Info

  • Kimitaka Nishitani

    (Graduate School for International Development and Cooperation, Hiroshima University)

  • Shinji Kaneko

    (Graduate School for International Development and Cooperation, Hiroshima University)

  • Satoru Komatsu

    (Graduate School for International Development and Cooperation, Hiroshima University)

  • Hidemichi Fujii

    (Graduate School of Environmental Studies, Tohoku University)

Abstract

This paper analyzes how a firmfs reduction of its greenhouse gas (GHG) emissions affects its economic performance. The theoretical model used is derived from the Cobb-Douglas production function and the inverse demand function, and predicts that in reducing its GHG emissions, a firm will increase its value added because it promotes an increase in demand for its output and improves its productivity. The estimation results, using data on Japanese manufacturing firms, suggest that the reduction of GHG emissions increases a firmfs economic performance only through an increase in demand. Thus, firms can improve their overall economic performance because increased demand accompanies their reduction of GHG emissions, even if they cannot achieve this through an improvement in productivity, as estimates here support the traditional view that reducing GHG emissions imposes additional costs on firms.

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File URL: http://ir.lib.hiroshima-u.ac.jp/metadb/up/ZZT00001/IDEC-DP2_01-1.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Hiroshima University, Graduate School for International Development and Cooperation (IDEC) in its series IDEC DP2 Series with number 1-1.

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Length: 21 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:hir:idecdp:1-1

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Web page: http://www.hiroshima-u.ac.jp/en/idec/
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Keywords: Reduction of greenhouse gas emissions; Economic performance; Increase in demand; Improvement in productivity; Instrumental variables model;

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  1. Robert D. Klassen & Curtis P. McLaughlin, 1996. "The Impact of Environmental Management on Firm Performance," Management Science, INFORMS, vol. 42(8), pages 1199-1214, August.
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  10. Kimitaka Nishitani, 2011. "An Empirical Analysis of the Effects on Firms’ Economic Performance of Implementing Environmental Management Systems," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 48(4), pages 569-586, April.
  11. Segerson, Kathleen & Miceli, Thomas J., 1998. "Voluntary Environmental Agreements: Good or Bad News for Environmental Protection?," Journal of Environmental Economics and Management, Elsevier, vol. 36(2), pages 109-130, September.
  12. Yamaguchi, Keiko, 2008. "Reexamination of stock price reaction to environmental performance: A GARCH application," Ecological Economics, Elsevier, vol. 68(1-2), pages 345-352, December.
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  15. Andrew King & Michael Lenox, 2002. "Exploring the Locus of Profitable Pollution Reduction," Management Science, INFORMS, vol. 48(2), pages 289-299, February.
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