Industry relocation or emission relocation? Visualizing and decomposing the dislocation between China's economy and carbon emissions

Abstract

Dirty industries tend to relocate to regions with looser environmental regulations, thus turning those regions into pollution havens. Numerous studies have tested the pollution haven effect of inter-country industrial relocation. However, little attention has been paid to the effect that is hidden in domestic industry relocation. Considering that domestic investment is about 10-fold that of foreign investment, it is vital to examine this issue to ensure the achievability of China's international pledge of mitigating carbon emissions. This research integrated multiregional input-output analysis and a center of gravity model to visualize the dislocation between carbon emissions, value added, and outputs at a sectoral level from 2007 to 2012 in China. Carbon emissions were also decomposed to three segments of final demand. We also investigated the movement of the center of gravity of these segments, and their dislocation with the outputs. Our analysis found that more carbon emissions had relocated from east to west with domestic industry relocation, yet the opposite was found for value added. Specifically, carbon intensive sectors showed clear tendencies of shifting west. Capital formation was the major cause of the pollution haven effects for the economy as a whole. Thus, our results suggest that pollution haven effects exist in the relocation processes of most sectors. In turn, our findings support the idea that mitigation policies should differ by region and by industry. Our recommendations include a negative list for regions in the west, a mitigation policy for industries with high pollution, and differentiated supply chain management for final demands.