Tax Planning Under Pressure: The Impact of Carbon Emissions Management Post‐Paris Agreement

ABSTRACT We examine how the Paris Agreement affects corporate tax planning across a global data set. We find that emissions‐reducing firms are associated with higher levels of tax planning than nonemissions‐reducing firms. The effect is stronger for firms facing tighter cost pass‐through constraints, such as operating in more competitive markets, with weaker pricing power or lower financial flexibility. This effect is also stronger for firms with aggressive tax histories, higher agency costs, greater analyst coverage and in civil‐law countries. The evidence suggests that climate‐related cost pressures influence firms' tax planning, indicating the need to consider tax implications when evaluating climate policy outcomes.