Who opposes climate regulation? Business preferences for the European emission trading scheme

Abstract

When do firms oppose international climate policy? Existing work often assumes that firms disapprove of climate regulation due to the immediate costs of compliance. We claim that if policy is implemented gradually, private preferences for climate policy vary as a function of its progressive stringency. That is, supportive views may rise in the initial phase of the policy, while opposing views may emerge as the policy becomes more stringent. We also argue that emissions of individual companies, as well as emissions levels in their respective sectors, influence corporate positions on these two dimensions. We test our argument with new corporate survey data on the European Union Emission Trading Scheme (EU ETS). We find that firms’ views on the performance of the EU ETS vary based on whether they concentrate on the policy’s current state or its future, more stringent development. Moreover, we find that individual firm and sectoral emissions correlate with support for the early-stage, more lenient version of the ETS, but that high-emission firms are more interested in disinvesting and relocating if the ETS becomes stricter. Our findings imply that both firm and sectoral organization can constrain environmental regulation, and that domestic compensation, especially at early stages, can have important effects on the continuity of climate policy.