Does Internal Carbon Pricing Enhance Productivity? Evidence From US Firms

ABSTRACT

Internal carbon pricing (ICP) is increasingly integrated into corporate climate strategy, yet evidence on whether it improves operational performance remains limited. Drawing on dynamic capabilities theory (DCT), this study investigates whether ICP disclosure is associated with higher total factor productivity (TFP) and the conditions under which this relationship is stronger. Using panel data on 3928 US publicly listed firms, we find that ICP disclosure is positively and significantly associated with productivity, with disclosing firms exhibiting roughly 4.91% higher TFP than nondisclosing firms. The association is stronger for firms located in states with carbon pricing policies and for firms with greater cash holdings, highlighting the complementary roles of external regulatory pressure and internal financial capacity. Overall, the findings position ICP as a strategic capability that supports productivity outcomes and provides relevant insights for firms and policymakers navigating the transition toward a carbon‐constrained economy.