July 09, 2021
Mandatory Public Reporting Reduced Carbon Dioxide Emission Rates of U.S. Power Plants
Since existing approaches to regulating firms may be ineffective, incomplete, or infeasible, societies have increasingly relied on a common understanding of acceptable conduct to govern businesses’ behavior, broadly referred to as corporate social responsibility. A new study examined the effect of a nationwide mandatory reporting program for greenhouse gas emissions on U.S. power plants, with a focus on this type of social responsibility.
The study found that firms reduced carbon dioxide emission rates at plants subject to mandatory public reporting. The finding is stronger for S&P 500 firms in the sample, which suggests that investors, shareholders, and other market participants are the likely source of the public pressure on firms to lower emission rates. But the study also found that for firms that owned both plants subject to the reporting requirements and plants not subject to the requirements, emission rates at plants not required to report increased significantly.
The study, by researchers at Carnegie Mellon University (CMU), appears as a National Bureau of Economic Research (NBER) working paper.
“Our findings offer new evidence that public or shareholder pressure is a primary channel through which mandatory corporate social responsibility reporting programs affect firms’ behavior,” says Nicholas Z. Muller, Professor of Economics, Engineering, and Public Policy at CMU’s Tepper School of Business, who coauthored the study.
In 2010, the Greenhouse Gas Reporting Program (GHGRP) required facilities emitting more than 25,000 metric tons of carbon dioxide (CO2) per year to report greenhouse gas emissions to the Environmental Protection Agency. The GHGRP also required that this information be disseminated to the public.
For the U.S. utility sector, both pre- and post-GHGRP emissions data are available from the U.S. Department of Energy for all power plants, including those emitting less than the 25,000-ton threshold. Using this data, researchers assessed the causal effect of GHGRP disclosure on firms’ behavior, examining plant-level CO2 emissions from 2004 to 2018 (before and after the mandatory program began).
Specifically, they sought to determine whether firms with plants whose CO2 emission reports were required to be publicly disclosed through the GHGRP acted differently than those whose plants were not subject to the program.
The study found that on average, plants covered by the GHGRP reduced CO2 emission rates 7 percent. Plants owned by publicly traded firms reduced CO2 emission rates by 10 percent, and plants with membership in the Standard and Poor’s 500 reduced emission rates by 11 percent.
The study also found that firms that owned both GHGRP plants and non-GHGRP plants strategically reallocated emissions between their plants to reduce GHGRP-disclosed emissions, with discharge rates at plants not covered by the GHGRP increasing from 25 to 56 percent. This finding suggests that firms find GHGRP disclosure costly.
“Earlier this year, the Biden Administration issued an executive order arguing for climate change-related disclosure in all economic sectors of the U.S. economy,” notes Lavender Yang, a Ph.D. student at CMU’s Tepper School of Business, who coauthored the study. “This and other similar actions suggest that reliance on corporate social responsibility to change firms’ performance is gaining momentum.”
The research was funded by alumni of the Tepper School of Business at CMU and the William Larimer Mellon Fellowship.
Summarized from an NBER Working Paper, The Real Effects of Mandatory CSR Disclosure on Emissions: Evidence from the Greenhouse Gas Reporting Program by Yang, L (Carnegie Mellon University), Muller, NZ (Carnegie Mellon University), and Liang, J (Carnegie Mellon University). Copyright 2021 The Authors. All rights reserved.