Do incentive‐based policies reduce firm‐level CO2 emissions? Evidence from EU cohesion policy

We examine whether incentive-based policies reduce ⁢2 emissions among beneficiary Italian firms, using project-level data from European cohesion policy. Exploiting quasi-random variation in the timing of EU-funded projects, we apply a staggered difference-in-differences design. We find robust evidence that EU climate-related incentives lower firm emissions. Recipient firms reduce ⁢2 emissions per unit of assets by 4.6% relative to non-recipient firms, while a 1% increase in EU funds per unit of assets leads to a 1.1% reduction in emissions. The effects are larger in less developed and transition regions, where policy resources are more concentrated, and among energy-sector firms. We further show that emission reductions are mainly driven by increased R&D activity: firms receiving green EU funds raise patenting by 3.0%–3.6%, with no significant effects on employment or tangible assets. These findings highlight the potential of incentive-based climate policy.