Corporate Climate Commitments: Empty Promises or Profit-Driven Strategy?

The surge of corporate climate pledges worldwide raises a fundamental question: Are these commitments the latest incarnation of cheap talk and greenwashing, or could they meaningfully accelerate decarbonization, even if firms are purely profit-driven? The 2015 Paris Agreement marked a turning point in climate negotiations, with nearly 200 nations committing to achieve “Net Zero” greenhouse gas emissions by 2050. Effective climate policy requires addressing a dual externality: not only should carbon emissions be taxed to mitigate climate damages directly, but green innovation should also be subsidized to take advantage of technological spillovers between firms and minimize the economic costs of decarbonization. Indeed, recent empirical work sheds some light on the appropriate policy mix: innovation subsidies could be efficient for innovation incentives, but green innovation alone, without carbon pricing, fails to reduce emissions. These findings reinforce the theoretical argument for policy complementarity. Yet government pledges to date lack specific enforcement mechanisms, and governments have struggled to implement credible long-run climate policies, in part due to extreme political uncertainty. The need for an efficient policy mix makes the lack of government credibility especially concerning.

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