Do Incentive‐Based Policies Reduce Firm‐Level CO2 Emissions? Evidence From EU Cohesion Policy

ABSTRACT We examine whether incentive‐based policies reduce emissions among beneficiary Italian firms, using project‐level data from European cohesion policy. Exploiting quasi‐random variation in the timing of EU‐funded projects, we apply a staggered difference‐in‐differences design. We find robust evidence that EU climate‐related incentives lower firm emissions. Recipient firms reduce emissions per unit of assets by 4.6% relative to non‐recipient firms, while a 1% increase in EU funds per unit of assets leads to a 1.1% reduction in emissions. The effects are larger in less developed and transition regions, where policy resources are more concentrated, and among energy‐sector firms. We further show that emission reductions are mainly driven by increased R&D activity: firms receiving green EU funds raise patenting by 3.0%–3.6%, with no significant effects on employment or tangible assets. These findings highlight the potential of incentive‐based climate policy.