Save Money, Live Better? The Urban Carbon Emissions of Wal-Mart

During last year’s successful push against the building of a Wal-Mart, Brooklyn residents and unions voiced concerns over low wages and few employee benefits if the store opened its doors in the area.

With urban centers responsible for 80 percent of the world’s greenhouse gas emissions, another question that big-box-retailers, like Wal-Mart, pose to cities is whether these large corporations are also greenhouse gas giants. The answer, according to recent research, may surprise you.

In the recently published National Bureau of Economics Research working paper “Big-Box Retailers and Urban Carbon Emissions: The Case of Wal-Mart,” Matthew E. Kahn and Nils Kok find that corporations like Wal-Mart are more inclined to make energy efficient decisions than smaller firms.

Building upon existing literature that measures the corporate social responsibility of retailers, Kahn and Kok focus on electricity consumption to evaluate the environmental performance of Wal-Mart stores. Since the consumption of electricity is tied so closely to the profits of firms, there are, as the authors point out, very few incentives, outside that of carbon pricing, for retailers to cut down on greenhouse emissions. Despite the inherent self-interest for Wal-Mart to ignore its externalities, the authors explore whether the low fixed costs (4,838 stores nationwide) and lack of capital constraints ($17 billion in profits in 2012) that Wal-Mart enjoys make them use energy more efficiently than other retailers with buildings of similar size.

To conduct their analysis, the authors utilize a panel data set of energy consumption of every Wal-Mart in California from 2006-2011 that also includes information on the physical characteristics and weather conditions of the stores. With the Wal-Mart stores as the trial group, Kahn and Kok compare this data to retail stores in the Western utility district similar in size as the control. From this data, they estimate the variation of energy consumption per square foot for all stores as well as calculate the average store electricity consumption, while controlling for other differences between stores.

Although day-to-day worker discretion (such as a preference for heating and cooling settings) leads to natural variation in the sample, the authors do find evidence of standardization across Wal-Mart buildings. For instance, the least efficient Wal-Mart stores consume just 34 percent more energy than stores in the 50^th percentile (the average-performing store). Further, the authors find newer store facilities consume less electricity than older stores despite prior research arguing that energy consumption will rise as commercial real estate is built. In the case of Wal-Mart, stores built within the last decade use four percent less electricity than buildings constructed before 1995. Given these findings, the authors suggest that Wal-Mart’s central management structure and its access to capital makes it more likely to make efficient energy investments.

As Kahn and Kok note, the commercial real estate sector is a major determinant of the carbon emissions in cities. As a result, a critical takeaway from their research for policymakers is that data on electricity consumption can be a useful tool in measuring a company’s and a city’s overall environmental impact. In the case of Wal-Mart, the authors calculate that the total social cost of carbon production from its stores in California in 2009 is $7 million. This work also indicates that further research into management structure and access to capital may provide future insights into organizational environmental performance.

Article Source: Matthew E. Kahn and Nils Kok, “Big-Box Retailers and Urban Carbon Emissions: The Case of Wal-Mart,” National Bureau of Economic Research Working Paper No. 19912, (2014).

Feature Photo: cc/(Walmart)