Policy design and firm-level energy efficiency: Evidence from emissions trading versus command-and-control in Korea

摘要

This study investigates how differences in climate policy design—emissions trading versus command-and-control regulation—affect firm-level energy and carbon performance. Exploiting the coexistence of the Korea Emissions Trading Scheme (K-ETS) and the command-and-control Target Management System (K-TMS), we examine whether market-based regulation reduces firms' value-added-based energy and carbon intensity relative to direct regulation. Using firm-level panel data from 2011 to 2023, we implement a staggered difference-in-differences framework and a separate event-study design to trace dynamic treatment effects. Because regime eligibility is determined by emissions thresholds, we focus on firms near the regulatory cutoffs and construct a unified measure of policy stringency to account for differences in reduction requirements across schemes. The results show that K-ETS participation is associated with significant reductions in both energy and carbon intensity for firms in the first-entry ETS cohort, but these effects are concentrated in the early post-entry years. Comparable reductions are not consistently observed for later-entry cohorts, suggesting that the effects of emissions trading are heterogeneous across cohorts and over time. Heterogeneity analyses further indicate that intensity reductions are more persistent among larger or higher-revenue firms, while stronger policy stringency alone does not guarantee sustained improvements. Overall, the findings underscore the need for market-based policy design that accounts for cohort-specific responses, regulatory stringency, and firms' financial capacity.