N°25-88: How Does Competition Affect Firms' Carbon Performance? Firm-Level Evidence from Tariff Cuts

We examine how changes in competition affect firms’ carbon performance. Exploiting reductions in import tariffs as a quasi-natural experiment that increases competitive pressure, we find that stronger competition improves firms’ carbon efficiency through lower Scope 1 and 2 emission intensities. These results remain robust to alternative specifications, heterogeneous treatment effects, and placebo tests. Mechanism analyses indicate systematic differences in firms’ strategic responses. High-emission firms tend to adopt visible environmental actions and reallocate resources toward intangible assets, whereas low-emission firms increase investment and financing activities. Overall, our results highlight competition as a determinant of corporate decarbonization, suggesting that market forces can complement regulatory approaches to improving firms’ environmental performance.