Exploring the green total factor productivity of China's metallurgical industry under carbon tax: A perspective on factor substitution

Abstract

The characteristics of high emissions and high energy consumption in metallurgical industry have brought great challenges to the green and low carbon transition in China. As a low-carbon economic instrument, carbon tax is generally considered to be an effective way to reduce CO2 emissions through raising energy cost, but whether it will promote the green total factor productivity (GTFP) of China's metallurgical industry is still unanswered. Under this background, this paper uses provincial panel data over years 2000–2015 to investigate the impact of carbon taxation on GTFP of metallurgical industry from the perspective of inter-fuel and inter-factor substitution. The lock-in mechanism is also incorporated in the three-stage estimation model to better reflect the asymmetric price response of factors and fuels. The results reveal that the slow marketization process of energy price and the rigid demand for energy in China's metallurgical industry hinder the substitution effect of energy. The implementation of carbon tax has limited effect on energy-saving and CO2 reduction in the metallurgical industry of China and levying a carbon tax has a negative effect on GTFP during the research period. Therefore, the government should not achieve CO2 reduction targets at the expense of green economic growth. GTFP is suggested to be considered in future assessment criteria in the process of transforming to low-carbon economy.