TY  - UNPD
A1  - Heider, Florian
A1  - Inderst, Roman
T1  - A corporate finance perspective on environmental policy
T2  - SAFE working paper ; No. 345
N2  - This paper examines optimal enviromental policy when external financing is costly for firms. We introduce emission externalities and industry equilibrium in the Holmström and Tirole (1997) model of corporate finance. While a cap-and- trading system optimally governs both firms` abatement activities (internal emission margin) and industry size (external emission margin) when firms have sufficient internal funds, external financing constraints introduce a wedge between these two objectives. When a sector is financially constrained in the aggregate, the optimal cap is strictly above the Pigouvian benchmark and emission allowances should be allocated below market prices. When a sector is not financially constrained in the aggregate, a cap that is below the Pigiouvian benchmark optimally shifts market share to less polluting firms and, moreover, there should be no "grandfathering" of emission allowances. With financial constraints and heterogeneity across firms or sectors, a uniform policy, such as a single cap-and-trade system, is typically not optimal.
T3  - SAFE working paper - 345 
Y1  - 2022
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/64573
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-645731
UR  - https://ssrn.com/abstract=4065554
IS  - December 2021
PB  - SAFE
CY  - Frankfurt am Main
ER  -