The Unintended Effects of Carbon Emission Policy: International Evidence from the Paris Agreement

The Challenge

Governments, investors and regulators increasingly expect carbon-intensive firms to set out credible decarbonisation pathways, but decarbonising is costly and those costs arrive long before any benefit. This research addressed the gap between that policy expectation and the available evidence.  

Specifically, it investigated whether disclosed climate transition plans translate into lower emissions, how firms fund transition costs when they cannot pass them on to customers or raise external finance, and whether capital markets reward the research and development that technological change in mining depends on.  

For resource firms in particular — price-takers in global commodity markets, with long project cycles and tight financing — these questions determine whether climate commitments are financially sustainable or merely presentational. 

Key Findings

Across three international studies the study found, transition plans are informative only under certain conditions: firms with 1.5°C-aligned plans reported slower growth in total and direct (Scope 1) emissions, while firms with no plan reported faster growth, and these associations were strongest in carbon-intensive industries and where emissions data were independently assured.  

Further using a difference-in-differences design around the Paris Agreement covering 41,199 firm-year observations across 78 countries, the study found that emissions-reducing firms increased corporate tax planning by roughly 1.4 to 1.7 percentage points relative to other firms, with the effect concentrated among firms in competitive markets with weak pricing power and limited financial flexibility — precisely those least able to pass carbon costs on.  

Finally, in a sample of ASX-listed junior mining firms from 2000 to 2019, R&D investment was value-relevant but priced with a lag: a one-standard-deviation increase in R&D intensity was associated with a 0.38 increase in Tobin’s Q three years later, equivalent to approximately AUD 3.35 million in additional market value of equity for the average firm, with the effect concentrated in precious and high-value metals. 

Benefits to WA

The findings speak directly to Western Australia’s minerals sector in three ways. For explorers and junior miners, the evidence that markets do reward R&D — but only after a two- to four-year lag, and more strongly for firms with sound governance and lower financial distress — supports the case for sustained innovation spending and for instruments such as the R&D Tax Incentive that lower its effective cost, while showing that governance quality and clear disclosure determine whether that spending is actually recognised by investors.  

For WA operators facing carbon costs, the research identifies which firms bear the greatest burden: price-takers who cannot pass abatement and compliance costs into commodity prices absorb them internally, which is relevant to how the Safeguard Mechanism and future carbon pricing will affect the sector, and demonstrates that climate policy can flow through to the corporate tax base, a fiscal spillover that warrants coordination between climate and tax policy.  

Finally, as mandatory climate reporting takes effect in Australia, the evidence that ambition and third-party assurance are what make transition plans meaningful gives WA companies and regulators a practical guide to where reporting effort delivers genuine value rather than compliance cost.