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Strategic Commitments to Decarbonize: The Role of Large Firms, Common Ownership, and Governments

Author

Listed:
  • Acharya, Viral
  • Engle, Robert
  • Wang, Olivier

Abstract

We study how government policies and corporate commitments to decarbonize interact under two externalities: environmental damages and green innovation spillovers. Unconstrained carbon taxes and innovation subsidies could achieve first-best outcomes, but when government policies face constraints, commitments by large firms and institutional investors can serve as profit-driven coordination devices that spur green innovation and technology adoption, and thereby reduce overall transition costs. Firm commitments also enhance government policy credibility by lowering the need for high future carbon taxes. Our empirical evidence confirms that firm size and green common ownership drive Net Zero commitments and decarbonization investments.

Suggested Citation

  • Acharya, Viral & Engle, Robert & Wang, Olivier, 2025. "Strategic Commitments to Decarbonize: The Role of Large Firms, Common Ownership, and Governments," CEPR Discussion Papers 20040, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20040
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    File URL: https://cepr.org/publications/DP20040
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    Keywords

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    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • G3 - Financial Economics - - Corporate Finance and Governance

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