China's pilot emissions trading schemes and competitiveness: An empirical analysis of the provincial industrial sub-sectors

Abstract

China's economic development has entered a “new normal” stage where economic growth has slowed down. In this context, China's local authorities and industry circles are particularly concerned about the impact of emissions trading scheme (ETS), China's first major market-based approach to control greenhouse gas emissions, on competitiveness. This paper contributes to the thin empirical studies on this issue from the perspective of China's provincial industrial sub-sectors. We divide the industry of each province into 37 sub-sectors and screen the actual industrial sub-sector coverage of China's pilot ETSs. Taking advantage of the rich information of sub-sector characteristics and the longitudinal structure of our dataset over 2005–2015, we use a combination of propensity score matching technique and difference-in-difference models to analyze the impact of China's pilot ETSs on gross industrial output value (GIOV) and employment. Empirical results indicate that China's pilot ETSs have exerted a negative impact on the GIOV, and production cut is still the major approach to achieve carbon emission reductions. We also find China's pilot ETSs have led to a significant decrease in employment of the covered industrial sub-sectors. Several robustness checks confirm our findings. Further, our discussions suggest that in the short term, China's pilot ETSs have not promoted the “decoupling” of carbon emissions and economic outputs in industrial sub-sectors. While achieving carbon emission reductions, the pilot ETSs have failed to avoid a negative impact on competitiveness. Lastly, we suggest that competent authorities should prudently tailor the quota allocation methods according to sectorial conditions and consider setting up compensation measures, and covered enterprises should incorporate low-carbon development concept and address the challenges proactively from the long run.