Assessing the effectiveness of the emissions trading program in the United States and policy implications for Vietnam

Abstract

This study examines the impact of California’s Cap and Trade program on CO2 emissions by publicly listed firms in the US. Using firm level greenhouse gas disclosures and financial data for 42 companies over 2007- 2018, the study employs a difference in differences approach to compare emission trends between regulated (“covered entities”) and unregulated (“non covered entities”) firms before and after the program’s launch in 2013. Heterogeneity analyses further investigate how industries, financial leverage, and profitability shape firms’ abatement behavior. This research contributes to the scarce literature on corporate level effects of Cap and Trade and uncovers the moderating mechanisms driving firm responses. The results offer valuable lessons and policy recommendations for public authorities, covered firms, investors, and financiers, particularly as Vietnam designs and pilots its own national emissions trading system