Do Regional Clusters Help Firms reduce Greenhouse Gas Emissions?
We study whether the presence of economically related businesses in a firm’s region strengthens its ability to curb greenhouse gas emissions in response to shifts in climate policy. We find that, after the Paris Agreement, emitting facilities located in denser regional clusters (regions with a stronger presence of economically related establishments) significantly reduced emissions relative to their peers located in less dense clusters. The effect is stronger in regions with potentially greater agglomeration benefits (knowledge spillovers, supply-chain relationships, and access to skilled labor), better access to bank capital and financial services, and a larger share of residents concerned about the adverse effects of climate change. These findings suggest that denser regional clusters enhance firms’ ability to meet global climate commitments.
