Climate Regulation, Firm Emissions, and Green Takeovers a

We show that an unexpected tightening of the EU Emissions Trading System led high‐emission‐intensity firms to cut emissions relative to low‐intensity peers within the same industry, without reducing output, thereby improving emission efficiency. Effects are stronger for power producers than for manufacturing firms. Examining mergers and acquisitions (M&As), we find that high‐intensity manufacturing firms acquire more green targets after the tightening than low‐intensity firms, with no change in the overall number of acquisitions, indicating a shift in focus rather than activity. Finally, we show that these green M&As contributed to the observed emission reductions over the study period.