The impact of a carbon tax on financial performance and innovation performance: an empirical study of the automotive industry

The pressing need to address climate change has resulted in the implementation of environmental regulations, such as carbon taxes, aimed at reducing carbon emissions. However, the impact of these regulations on firm performance, particularly within the U.S. automotive industry, remains inadequately understood. This research empirically examines the potential effects of the carbon tax policy on both financial performance and innovation, with a specific focus on assessing the validity of Porter’s hypothesis. Utilizing firm-level panel data from U.S. automotive companies spanning the years 2000 to 2019, the analysis reveals a crowding-out effect of the carbon tax on both financial and innovation performance in the U.S. automotive industry.