Effects of emission trading schemes on corporate carbon productivity and implications for firm-level responses

Since the South Korean government enacted the Emission Trading Scheme (ETS), companies have been striving to simultaneously improve productivity and reduce carbon emissions, which represent conflicting goals. We used firm-level emissions and corporate variables to investigate how ETS enactment has affected carbon productivity, which is a firm-level revenue created per unit of carbon emission. Results showed that firm-level carbon productivity increased significantly under the ETS, and such a trend was more evident for high-emission industries. We also found that companies with high carbon productivity were (1) profitable, (2) innovative, and (3) managed by CEOs with experience in environmental fields. These findings suggest that to achieve the conflicting goals of increasing corporate profits while reducing emissions, firms have to invest in green technologies, and such decisions are supported by green leadership. Our findings also have implications for corporate leadership; data highlight the importance of managing human resources and deploying investment policies to respond to ETS.