EXPRESS: Harnessing Renewable Portfolio Standards for Sustainable Futures: An Empirical Examination of Spillover Effects

Given the importance of managing industrial energy consumption, setting standards and implementing policies that encourage renewable energy use is crucial for incentivizing sustainable firm practices. Public policy designs must align closely with firms’ environmental policies to help mitigate greenhouse gas (GHG) emissions and support a sustainable future. While research on policy impacts on firm environmental performance and the supply chain's role in sustainability is growing, a critical, understudied effect is the spillover of government rules to supply chain partners and peer firms, especially those outside the direct purview of environmental regulations. This paper presents a novel approach that integrates data from the Carbon Disclosure Project (CDP) and the Renewable Portfolio Standards (RPS). The latter refers to state-driven initiatives that incentivize electricity consumption from eligible renewable resources. We examine the causal effects of state-level policies on firm-level GHG emission intensity, with particular emphasis on the spillover effects of policies on unregulated firms across markets. We break down emission intensity into Scope 1 and Scope 2 and capture facility-level data to analyze spillover effects in granular detail. Using a staggered difference-in-differences methodology, our analysis finds a promising negative association between RPS introduction and GHG emission intensity among unregulated firms across industries. Interestingly, firms headquartered in states with more conservative initial targets during RPS adoption and progressive, milestone-based implementation strategies have significantly lower GHG emission intensity than those headquartered in states with more aggressive initial targets or long-term absolute targets. Our findings have significant implications for developing environmental regulations and public policies aimed at reducing GHG emission intensity.