How do power shortages affect CO2 emission intensity? Firm-level evidence from China

Abstract

Power shortage is a development challenge that most developing countries often face, which not only brings negative impacts to firms' growth, but also has an impact on their environmental performance. In this study, a city-level power shortage index in China from 2008 to 2015 was used to investigate how electricity shortages can affect firms' carbon dioxide (CO2) emission intensity. We also examined the indirect impact of electricity shortages on CO2 emission intensity through three channels, namely, technological innovation, energy intensity and productivity. Our empirical results indicate that power shortages have a statistically significant positive impact on firms' CO2 emission intensity. The findings are robust to various robustness checks and endogeneity concern. The results verify the robustness of our proposed three mechanisms and imply that power shortages have an inhibitory effect on China's green and low-carbon transition in addition to their other well-known negative effects. Therefore, policymakers should consider the effect of power shortages on the energy transition in addition to the conventional negative impacts of power shortages on economic activities.