Does China's Pilot Carbon Market Cause Carbon Leakage? New Evidence from the Chemical, Building Material, and Metal Industries.

Abstract

The carbon market is an effective market for reducing greenhouse gas emissions; however, the existence of carbon leakage affects the emissions reduction effect of the carbon market. Using the multiregional input-output (MRIO) model and the difference-in-differences (DID) methodology, this study examined whether the chemical, building materials, or metals industries in China's pilot carbon market have caused carbon leakage, the extent of the carbon leakage, and the areas to which the industries with carbon leakage have transferred their carbon emissions. The results showed that the pilot carbon market caused carbon leakage in the chemical, building materials, and metal industries. The building materials industry had the most serious carbon leakage, followed by the chemical industry, and the metal industry was the weakest. In addition, regardless of the industry, most of the areas affected by carbon leakage were concentrated in regions with relatively backward economic development and weak in-place environmental regulations, such as in the central and western regions. Compared with the other pilot areas, Guangdong was the area most likely to be affected by carbon leakage from other pilot areas. This study provides new evidence for the existence of carbon leakage in China's pilot carbon market from an industrial perspective.