Robbing Peter to Pay Paul: The Impact of California’s Cap-and-Trade Program on Toxic Emissions

We empirically examine the consequences of the introduction of a cap-and-trade program in California, showing that although the program helped reduce greenhouse gas (GHG) emissions, it had the unintended consequence of increasing toxic emissions from treated facilities, as facilities cut back on their waste-treatment efforts to reduce GHG emissions. We further show that this effect was weaker for more harmful toxins, for facilities that had invested in reducing toxic waste at source, and for those that were subject to close scrutiny from regulators, consistent with it being the result of strategic firm actions. This paper was accepted by Alfonso Gambardella, business strategy. Funding: I gratefully acknowledge financial support from the Singapore Green Finance Centre to enable the dissemination of this research’s findings. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.03560 .