Carbon Emissions Reduction or ‘Relocation’? A Study on the Corporate Response to Climate Change and the Role of Environmental Law

Abstract

Reducing the carbon footprint left by humans is a vital challenge for companies in our fight to combat climate change. However, concerns persist over an alarming trend where companies appear to be merely ‘shifting’ their carbon emissions from domestic markets to other jurisdictions. Consequently, it is ‘leaking’ carbon rather than genuinely reducing emissions. Through an analysis of over 360 U.S. firms and framed by legitimacy theory, this study finds that companies facing increasingly intense pressure to legitimise their operations under stricter environmental regulations are more likely to opt for ‘relocating’ their carbon emissions instead of implementing tangible reductions. Intriguingly, corporate social responsibility (CSR) fails to curtail this practice; instead, it amplifies it. These results underscore the importance for environmental policymakers and academia to recognise that, as environmental regulations become more stringent, relocating carbon emissions may become increasingly common unless companies are incentivised economically to genuinely reduce their CO₂ output.