Outsourcing Climate Change
50 Pages Posted: 13 Jan 2021 Last revised: 13 May 2021
Date Written: January 7, 2021
This paper exploits newly available information on firms' direct (own production) and indirect (supplier-generated) carbon emission intensities and transaction-level imports to conduct an in-depth analysis of whether and how U.S. firms address climate change. We find robust evidence that U.S. firms' imports amplify the substitutional relationship between their direct and indirect carbon emissions, suggesting that these firms outsource part of their pollution to suppliers overseas. Our key evidence is further substantiated by quasi-natural experiments associated with demand and supply shocks to emissions. We also show that firms, management, and directors with desires to maintain high environmental standings and environmentally-conscious customers and investors play a role in corporate environmental policies. Finally, firms with more imported emissions tend to have higher reputational risks and larger future stock returns but are less incentivized to develop clean technologies.
Keywords: Outsourcing, Emissions, Import, Pricing and Welfare Implications
JEL Classification: G23, G30, G34, M14
Suggested Citation: Suggested Citation