Conference Agenda

The relationship between environmental regulation and firm productivity remains unsettled. Using a large-scale panel of EU firms spanning numerous sectors over 2013–2022, this paper examines how environmental policy stringency relates to firm-level productivity. Productivity is obtained from estimated production functions and linked to policy stringency, measured by the OECD Climate Actions and Policies Measurement Framework (CAPMF), in a dynamic distributed-lag panel framework. Stricter policy is not systematically associated with lower productivity. Estimated effects vary with policy scope and with how slow-moving country characteristics and macro-policy environments correlated with CAPMF are accounted for. Specifications that impose common policy coefficients across sectors and instruments yield small, often negative average associations, whereas richer conditioning attenuates these losses and can imply modest positive medium-run responses. Allowing for heterogeneity across instruments and sectors reveals pronounced differences in estimated effects. Market-based instruments are more likely to coincide with productivity gains than non-market measures, and sector-specific estimates show offsetting winners and losers across CAPMF components that aggregate models mask.