The social effects of energy regulation: Energy-consuming rights trading system and corporate labor demand

Abstract

Although it is a key measure to control energy consumption and promote the improvement of industrial structure, energy market allocation reform has rarely been concerned with its impact on employment, an important livelihood issue. To fill this gap, this paper takes the Energy-Consumption Rights Trading System (ECRTS) enacted by China in 2016 as a research background and adopts the difference-in-difference approach to explore the effects and mechanisms of the ECRTS on enterprise labor demand. The results show that the ECRTS significantly reduces firms' labor demand, particularly for low-skilled workers, through both production scale effects and technological upgrading effects. Specifically, the ECRTS has led to a decrease in sales revenues and an increase in labor productivity, thereby reducing firms' labor demand. Heterogeneity tests indicate that the ECRTS has a greater impact on employment in firms with lower energy-consumption intensity, domestic capital injections, weaker innovation capacity, and lower market power. The paper also explores the welfare consequences of the policy, finding that while the ECRTS does not improve the environmental performance of firms it does not pass on the compliance costs of regulations to incumbent workers. The overall impact is neutral. This paper extends the study of the economic consequences of the ECRTS and has implications for other developing countries in reconciling energy regulation and employment.