Upstreamness, foreign environmental regulation and CO2 emissions in Indian manufacturing firms

I analyse how global value chain (GVC) position and exposure to foreign environmental regulation shape firms’ CO 2 emissions in a large emerging economy. Combining detailed energy-use records for Indian manufacturing firms with firm-specific GVC position indicators and exposure to foreign environmental policy stringency (EPS), I show three main results. A one-unit increase in upstreamness–moving further from final consumption roughly being equivalent to the average GVC position of textile firms to that of basic metals firms–raises direct CO 2 emissions by 28 % and CO 2 per unit of value added by 35 %. Second, the higher CO 2 intensity of upstream firms becomes statistically insignificant for firms that operate in industries that are highly exposed to stringent environmental regulations: the interaction term between upstreamness and EPS is negative significant and fully offsets the baseline effect. Third, exporting per se does not moderate the upstreamness-CO 2 relationship, indicating that over-proportional technology upgrading in upstream positions is driven by exposure to destination-specific factors. Overall, the evidence suggests that foreign stakeholder pressure is transmitted through GVCs and can help decarbonise energy-intensive upstream producers. • Firm-level evidence links GVC upstreamness to higher direct CO 2 intensity. • Within industries, upstream firms emit 28 % more CO 2 and 35 % more per value added. • Exposure to stringent foreign environmental regulation diminishes the higher upstreamness CO 2 intensity. • Exporting itself does not alter the upstreamness-CO 2 intensity relationship. • Cutting emissions in upstream sectors is essential for global CO 2 targets.