We study commitments to reduce emissions by firms subject to the European Union Emission Trading System (EU ETS), the world’s largest cap-and-trade program. Commitments are associated with a drop in the number of carbon allowances surrendered, consistent with firms taking actions to reduce their emissions. However, firms subsequently increase their sales of allowances on the secondary market, transferring the right to pollute to others and potentially leaving aggregate emissions unchanged. They do not reduce emissions outside the EU or invest in green technologies. Despite this, firms benefit from commitments via higher ESG scores. Our findings underscore the importance of considering the interaction between carbon markets and private climate initiatives.
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