Assessing the Role of Domestic Value Chains in China’s CO2 Emission Intensity: A Multi-Region Structural Decomposition Analysis

Abstract

China has been facing severe pressure in CO2 emissions mitigation. With production fragmentation among provinces inside China, domestic value chains (DVCs) have become increasingly important to both economic growth and CO2 emissions of the country. Thus greening domestic value chains is crucial for China to achieve its climate goal. A fundamental question behind this issue is to assess the role of DVCs in China’s emission intensity and quantify the underlying drivers. To this end, a multi-region structural decomposition analysis (MR-SDA) model is proposed in this study. A change in national emission intensity is explained by two divisions of effects, i.e. local effects and DVC effects. From a forward linkage perspective, this study further disentangles the DVC production links and captures its impact on emission intensity. Applying the proposed MR-SDA model to study China’s CO2 emission intensity change in 2002–2012 shows that the DVCs hindered further emission intensity reduction of China during this period. The main determinant was the deteriorated DVC forward linkages in the central and western regions of China. More detailed results and discussions are presented.