Carbon Pricing and Corporate Biodiversity Footprints: Environmental Co-Benefits and Resource Use Trade-Offs

This paper examines how carbon pricing affects corporate biodiversity footprints using firm-level panel data from 2018-2024. Because such policies target greenhouse gas emissions, their broader biodiversity effects are theoretically ambiguous: cleaner production may reduce pollution and land use pressures, while the lowcarbon transition may intensify resource extraction. Exploiting Washington State's Cap-and-Invest Program as a quasi-experimental shock, we estimate difference-indifferences effects across biodiversity-pressure categories. We find that carbon pricing reduces firms' overall biodiversity footprints by about 16.5%, driven by reductions in pressures associated with greenhouse gas emissions, land use, air pollution, and water pollution. In contrast, resource-related pressures increase, consistent with greater material demand during the transition. These reductions in biodiversity pressures are stronger among firms with higher pre-treatment emissions intensity, but weaker among rapidly growing firms. Overall, carbon pricing generates broad environmental co-benefits but also creates resource use trade-offs.