Porter effect vs cost effect: The impact of China's low carbon city pilot on carbon emissions and economic performance

Abstract

Building a low-carbon economy can help cities effectively mitigate climate risks, but it is challenging for developing countries. Using a difference-in-difference and event study model, we investigate the joint impact of China's Low-Carbon City Pilot (LCCP) on carbon emissions and economic performance. Our findings show that the LCCP significantly reduces carbon emissions and increases gross revenues, employee count, and fixed assets without compromising the net profit of manufacturing firms. The LCCP has a cumulative effect, with the positive joint impact increasing gradually over time. A heterogeneity analysis shows that the later pilot cities have not achieved better carbon emissions and economic performance than the early pilot cities. The reason for the positive joint effect of LCCP is that the Porter effect outweighs the cost effect. These findings contribute to knowledge about how developing countries can develop a low-carbon economy.