How do zombie enterprises hinder climate change action plans in China?

Abstract

The climate targets identified at the 27th Conference of the Parties (COP27) create unprecedented pressure to accelerate the ambitious transition toward net-zero carbon emissions by the middle of the century. This paper considers the negative externalities and frictions of zombie enterprises on switching to a low carbon production model from an empiricist point of view. We estimate and investigate the impact of zombie enterprises on carbon emission intensity, by merging county-level carbon emission records in China and information from the industrial enterprise database from 2003 to 2012 as our sample. The results show that zombie enterprises are decisive drivers in the variation of carbon emission intensity. This effect is more profound for enterprises in the small and medium-sized cities in China's west. The effects of zombie enterprises may crowd out the effect of investments in industrial pollution abatement technology, inhibit the marketization process, and distort the energy structure, which are internal channels of how zombie enterprises hinder the implementation of the climate change policy. China should be devoted to eliminating zombie enterprises through market mechanisms in the long term to further enhance the achievement of nationally determined contributions to the consensus goals set at COP27.