As part of the series of the „Finance Research Seminar“, VGSF welcomes Cecilia Bustamante from Robert H. Smith School of Business, University of Maryland to present her research paper.
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Paper
Dynamic Carbon Emission Management
Carbon regulation poses the corporate challenge of developing a carbon management policy. We provide a unified model characterizing how firms should optimally manage emissions through production, green investment, and the trading of carbon credits. We show that carbon pricing reduces emissions, but also induces firms to shift towards more immediate yet transient types of green investment—such as abatement instead of innovation—as it becomes costlier to comply. Pricing carbon below its social cost, combined with a subsidy to green innovation, mitigates this shift and ensures not only a reduction in current emissions but also the transition to sustainable technology.
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