This paper develops new procedures to measure environmental performance in cross-country firm-level data, explore the heterogeneity in environmental performance and its relationship with economic performance based on data from Croatia, France, Indonesia, and Lithuania. It documents extensive firm heterogeneity in carbon productivity (defined as value added per tonne of CO2 emitted) within narrowly defined industries, which significantly exceeds the extent of heterogeneity in labour productivity. On average, the 90th percentile firm is 22 times more carbon productive than the 10th percentile firm in the same industry (compared with seven times for labour productivity). This heterogeneity has important implications for aggregate emissions: raising the carbon productivity of the least productive firms to the carbon productivity of the median firm in their industry would reduce carbon emissions by 72% for the same level of output in total across the four countries. Furthermore, a growing carbon productivity dispersion is associated with a lower carbon productivity growth. Industries that are more dispersed in carbon productivity are also more dispersed in labour productivity and firms that are more carbon productive are also more labour productive, even when controlling for other factors. These correlations also hold in changes over time and suggest that structural characteristics of both firms and industries may jointly explain both economic and environmental outcomes. Firm-level regressions show that a plausibly exogenous increase in energy prices – as would be induced by a carbon tax – cause a significant fall in CO2 and an improvement in carbon productivity, without detrimental economic effects. This evidence suggests that there is a significant untapped potential of improved environmental performance and reduction in industrial emissions, and that these improvements could be achieved without affecting economic performance.
Ansprechpartner: Albert Roger
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