Firms headquartered in countries with strict environmental policies perform their polluting activities abroad in countries with relatively weaker policies, but emit less overall CO2 globally due to strict policies at home

Exporting Pollution. Itzhak Ben-David, Stefanie Kleimeier, Michael Viehs. NBER Working Paper No. 25063. http://www.nber.org/papers/w25063

Abstract: Despite awareness of the detrimental impact of CO2 pollution on the world climate, countries vary widely in how they design and enforce environmental laws. Using novel micro data about firms’ CO2 emissions levels in their home and foreign countries, we document that firms headquartered in countries with strict environmental policies perform their polluting activities abroad in countries with relatively weaker policies. These effects are stronger for firms in high-polluting industries and with poor corporate governance characteristics. Although firms export pollution, they nevertheless emit less overall CO2 globally in response to strict environmental policies at home.