Emissions Trading Scheme Research Articles

The spatial spillover effect of carbon emission trading scheme on green innovation in China’s cities

The spatial spillover effect of carbon emission trading scheme on green innovation in China’s cities

Exploring the spatial spillover effects of climate mitigation policies on the upgrading of industrial structure: Evidence from 31 provinces of China

In the context of the formidable challenge posed by global climate change, achieving high-quality and sustainable economic development has become a topic of widespread concern. Since the signing of the Kyoto Protocol, nations worldwide have actively engaged in the fight against climate change. As the largest emitter of greenhouse gases globally, China has introduced a series of low-carbon policies to attain its sustainability goals. Based on the panel data of 31 provinces in China from 2005 to 2019, this paper investigates the spatial spillover effects of the carbon Emission Trading Scheme (ETS) on the industrial structure upgrading and its transmission mechanisms by constructing spatial econometric models and a multiple mediation effect model. The results indicate that ETS exerts a promotional effect on industrial structure upgrading within policy pilot regions. However, in the peripheral areas outside the pilot regions, there exists a negative spillover effect, and the inhibitory effect is stronger than the promotional effect. Moreover, consumer upgrading and technological innovation emerge as two major pathways through which ETS stimulates the upgrading of industrial structures. Results from two sets of heterogeneity tests reveal that the impact of low-carbon policies on industrial structure upgrading is most pronounced in the eastern regions and areas characterized by high pollution.

Administration-Led Carbon Markets and China’s Green Transition: Efficiency, Fairness and Rent-Seeking

ABSTRACT This paper argues against the claim by Chinese government officials and some scholars that China’s carbon emission trading scheme is market-driven. It finds that, in contrast to carbon markets that are characteristic of the marketization model, China’s carbon markets are led by the state, and the market mechanism plays a limited role at best. Consequently, China’s carbon markets are overwhelmingly challenged by a number of factors. These include the low efficiency of resource allocation, questionable market fairness, rent-seeking, and corruption. This paper argues that the state-led mechanism is not conducive to China’s green transition unless a market system is introduced.

Will carbon emission trading scheme affect industrial investment? Evidence from China’s listed companies

ABSTRACT Using data from A-share listed companies in China spanning the years 2008 to 2020, this study constructs a Staggered Difference-in-Differences (DID) model to estimate the influence of the Carbon Emission Trading Scheme (ETS) on industrial investment, based on signalling theory, financing constraint theory and capital structure theory. The main findings are summarized as follows: Firstly, the implementation of ETS is observed to enhance industrial investment levels within listed companies located in pilot areas. This finding is confirmed through a series of robustness tests that further validate its credibility. Secondly, the analysis of mechanisms reveals that the positive effect of ETS on industrial investment is due to its ability to improve the environmental performance and market value of listed companies. These findings provide empirical evidence and valuable insights for assessing the efficacy of environmental regulation policies and refining the ETS framework.

Do Short Sellers Target Firms with High Climate Risks? International Evidence

ABSTRACT Using an international sample of firms from 36 countries over the period 2002 to 2018, we investigate whether short sellers take firms’ climate risk into consideration when making investment decisions. Our empirical results show that short sellers increase their short-selling interest in firms with high carbon emission intensity but shun good carbon performers. Furthermore, the effect of climate risk on short-selling interest is more pronounced for firms operating in countries or regions that have adopted an emission trading scheme (ETS) as well as in countries characterized by higher regulatory quality and greater media pressure. We also document that short sellers in countries with stringent carbon regulations, higher environmental awareness, and superior environmental performance are more sensitive to climate risk. Our channel analyses highlight that stock overvaluation and an opaque information environment are two potential motives for short-selling interest in carbon-risky firms.

Unveiling the relation between digital technology and low-carbon innovation: Carbon emission trading policy as an antecedent

While the carbon emission trading policy presents an opportunity for firms to concurrently advance in digital technology and low-carbon innovation, the existing literature falls short in elucidating the relationship between the two. Therefore, based on the sample of Chinese A-share listed companies from 2007 to 2021, this study examines the impact of digital technology on low-carbon innovation under the carbon emission trading policy by using DID model, moderating variable and other methods. The results show that digital technology is positively correlated with low-carbon innovation under the carbon emission trading policy. Secondly, digital technology breadth and depth emerge as dual facilitative avenues. However, carbon emission trading schemes appears to curb the impact of the digital technology depth. Thirdly, technological capability is a key resource in moderating the relationship between digital technology and low-carbon innovation. Internal control, however, exerts a significant moderating effect exclusively on digital technology breadth. Finally, drawing from the analysis of company differentiation, the study conclude that smaller firms and research and development (R&D)-oriented firms are better poised to implement strategic plans that harmonize digital technology and low-carbon innovation.

Firm ownership structure and voluntary carbon disclosure: a systematic review and meta-analysis

Purpose This study aims to systematically consolidate and quantitatively integrate the mixed empirical results on the association between ownership mechanisms and voluntary carbon disclosure using meta-analysis and further propose potential country-level moderators of this relationship. Design/methodology/approach The authors apply meta-analytic procedures on 55 empirical studies conducted during 2008–2022, covering 13 countries, 85 effect sizes and 226,473 firm-year observations. To gauge the significance of the estimated mean effect size, a random-effects Hedges and Olkin meta-analysis procedure is adopted, followed by a restricted maximum likelihood based meta-regression, to test the effect of possible moderators. Findings Aligned with agency and stakeholder theories, the results highlight institutional and state ownership (SO) as having a significant positive impact on voluntary carbon disclosure. On the other hand, ownership concentration, managerial and foreign ownership have an insignificant effect on voluntary carbon disclosure. Based on institutional theory perspectives, the authors confirm the impact of institutional ownership on voluntary carbon disclosure to be more prominent in civil law countries and those countries that have implemented an emission trading scheme (ETS). Practical implications The finding that institutional and SO in firms can translate into higher voluntary disclosures deems investors and the government as crucial stakeholders in achieving carbon neutrality. Furthermore, the finding that the effect of institutional investors on carbon disclosure is heightened in ETS-implemented countries provides evidence to the regulatory authorities in favour of this scheme. Social implications The positive impact of institutional and government ownership on voluntary carbon disclosure highlights that these ownership structures not only have the potential to transform corporate decisions but also have implications for the wider society. As firms owned by institutional investors disclose their carbon information, it provides access to critical information about their environmental practices to the public. This fosters an environment of transparency and trust between the firm and its stakeholders (the community), leading to an overall well-informed society. Originality/value While prior meta-reviews studied the impact of corporate governance on voluntary disclosures, the meta-literature, as of 2024, has yet to address its influence specifically on carbon disclosures, which are pertinent amidst the ongoing global climate change crisis. The findings inform policymakers about the pivotal institutional factors that can amplify the impact of effective ownership structures on voluntary carbon disclosure. Future scope exists for investigating the effects of ownership mechanisms on firm-level sustainable investments. Furthermore, future empirical analysis could consider the moderating influence of “culture” and “ease of doing business” on the ownership-carbon disclosure relationship.

The impact of carbon emission trading schemes on China’s economic inequalities between and within urban and rural areas based on the satellite data: a county-level analysis

ABSTRACT Although China’s carbon emission trading schemes (CETS) garnered significant attention in the field of climate mitigation, limited data availability has hindered exploration into the impact of CETS on economic inequality at the county level in China. Given its potential to facilitate industrial upgrading and generate employment opportunities, the adoption of CETS holds promise for reducing economic inequality. To address data limitations, we employed a combination of gridded nighttime light data and land use data to estimate China’s county-level Dagum Gini coefficient and its components. Subsequently, we applied a difference-in-difference-in-difference method to examine how CETS affected economic inequalities between and within urban and rural areas in China. Our findings reveal that: (1) CETS significantly reduced overall economic inequality in counties with a high proportion of secondary industry output; (2) this reduction primarily occurred within urban and rural areas rather than between them. Further heterogeneity analysis demonstrates that while CETS effectively mitigated economic inequality between urban and rural areas in central and western regions, it did not achieve similar outcomes in the eastern region; (3) service industry development and rural GDP per capita served as important channels through which CETS reduced economic inequality within rural areas. Infrastructure development driven by CETS primarily addressed economic inequality within urban areas rather than rural areas.

Is the carbon emission trading scheme conducive to promoting energy transition? Some empirical evidence from China

The Carbon Emissions Trading Scheme, an important market-driven environmental regulating tool, which will significantly impact China's achievement of its “30·60 Dual-Carbon Target, can also be seen as promoting and accelerating the energy transition. This study investigates the influence of the Carbon Emissions Trading Scheme on energy transition using the difference-in-differences model and presents evidence for the effectiveness of the Carbon Emissions Trading Scheme in energy transition using the propensity score matching method and other robustness testing methods, using provincial data of China from 2010 to 2016. The results demonstrate that: (1) the Carbon Emissions Trading Scheme has promoted approximately 4.6% of the energy transition; (2) the robustness analysis reveal the beneficial function of the Carbon Emissions Trading Scheme in the energy transition; and (3) the mechanism analysis identifies technological innovation and financial decarbonization as two critical impact pathways. Finally, based on the research results of our study, we provide corresponding policy implications for improving China's Carbon Emissions Trading Scheme and accelerating the energy transition.

Assessing regional employment effects of the national emission trading scheme in China: Does Okun's law work?

Employment creation and climate change mitigation are core tasks for achieving sustainable development goals. Whether or not carbon mitigation policy facilitate employment deserves deep exploration. Through the construction of multi-regional dynamic computable general equilibrium model (CGE) with more scientific energy & environment block, this paper first evaluates regional employment effects of the national emission trading scheme (ETS) in China. Furthermore, we explore the Okun's law of the national ETS based on the mediating effect model. The results show that whether in carbon-intensive industries (CIIs) or non-carbon-intensive industries (NCIIs), employment effects of the national ETS are differentiated across regions. Specifically, the national ETS generally promotes CIIs' employment in Southern, Eastern, Middle Yangtze River and Southwest regions, and has negative effects on CIIs' employment in other regions. Meanwhile, the national ETS brings employment creation to NCIIs of Southern region, while there are opposite results in NCIIs of Northeast region and mixed results in NCIIs of other regions. Moreover, the Okun's law of the national ETS holds in CIIs of each region, but it not fits the data for NCIIs. Therefore, it is important for the Chinese government to consider the differentiated employment effects in different regions carefully rather than adopt one-size-fit-all solution when constructing the national carbon market.

A novel intervention effect-based quadratic time-varying nonlinear discrete grey model for forecasting carbon emissions intensity

In the context of severe global warming, accurately exploring the trend of carbon emissions intensity (CEI) changes is of great significance for mitigating climate change issues. The implementation of China's Carbon Emissions Trading Scheme (ETS) in 2013 is a policy intervention aimed at influencing CEI. The impact of intervention events makes forecasting a complex problem, which poses significant challenges to the construction of forecasting models. We first develop a quadratic time-varying nonlinear discrete grey model (QDNDGM(1,1)) to assess the intervention effect of the ETS policy. Then, a novel intervention effect-based quadratic time-varying nonlinear discrete grey model (IE-QDNDGM(1,1)) is developed to conduct the prediction under intervention effect, including an intervention term. The Whale Optimization Algorithm (WOA) is used to calculate a nonlinear parameter. We assess the intervention effect of the ETS policy in China and find that it can indeed reduce CEI. We verify the IE-QDNDGM(1,1) model’s superiority by comparing its predictive performance with that of three grey models, one statistical technique, and one artificial intelligence model. The comparative study shows the proposed model’s excellent fitting and prediction performance. An ablation experiment is conducted to validate the design of the IE-QDNDGM(1,1) model. Policy implications of the ETS intervention effect are discussed.

The productivity paradox in carbon‐intensive companies: How eco‐innovation affects corporate environmental and financial performance

AbstractEmpirical studies analyzing the relationship between strategies to reduce greenhouse gas (GHG) emissions and firms' environmental and financial performance often fail to find significant effects when firms invest in innovative green technologies. Indeed, as efficiency and productivity gains of new technologies can often be reaped only after a certain time gap, cross‐sectional studies are bound to ignore the time component, thus becoming subject to the productivity paradox. Employing an integrative approach, drawing on eco‐efficiency theory, productivity paradox, and innovation diffusion principles, this longitudinal study observes companies with high GHG emissions during and after the first two European Union Emission Trading Scheme (EU ETS) trading periods (2005–2019). It analyzes (1) the dynamics of carbon reduction practices over time, (2) the impact of GHG reduction strategies on environmental performance, (3) the positive effect of GHG‐related efficiency improvements on firm performance, while considering (4) the moderating effect of GHG emissions type on the latter relationship.

Identifying price bubbles in global carbon markets: Evidence from the SADF test, GSADF test and LPPLS method

Amid growing climate concerns, Emissions Trading Schemes (ETS) serve as key mechanisms for reducing greenhouse gas emissions through market forces. This study delves into the phenomenon of price bubbles within six major ETSs globally: the European Union Emissions Trading Scheme (EU ETS), the New Zealand Emissions Trading Scheme (NZ ETS), the California-Québec Emissions Trading Scheme (CQ ETS), the South Korea Emissions Trading Schemes (K-ETS), the China Emissions Trading Scheme (C-ETS), and the United Kingdom Emissions Trading Schemes (UK ETS). Employing the sup augmented Dickey-Fuller (SADF) test, generalized sup ADF (GSADF) test, and log-periodic power law singularity (LPPLS) model, our analysis aims to uncover the dynamics and implications of these bubbles. Our findings reveal varied patterns of price bubbles across the schemes, with the EU ETS showing the highest frequency and the NZ ETS exhibiting the longest durations. The period of 2021 and 2022 marked a significant increase in bubble occurrences across all ETSs, suggesting the influence of post-COVID-19 economic recovery and geopolitical tensions on market stability. These bubbles are attributed to factors including carbon market policies, macroeconomic conditions, energy price fluctuations, and market uncertainties. The study offers valuable insights for compliance firms, policymakers, and investors on navigating carbon market volatility. Understanding bubble dynamics can aid in formulating more effective emission reduction strategies, carbon pricing policies, and investment decisions. This research underscores the importance of integrating monetary policy considerations with environmental objectives within ETS frameworks, paving the way for future research on predictive bubble detection and the development of robust carbon market regulations.

The role of imperfect market structure in the employment effect of emissions trading scheme in China: A theoretical extension and empirical investigation

The Chinese government aims to balance employment stabilization and emissions reduction when it initiates an emissions trading scheme (ETS) to control carbon emissions. However, the policymakers should not neglect the role of imperfectly competitive market structure and market power from incumbent firms. In view of this, classical framework of Berman and Bui's (2001) is extended in this paper to clarify the theoretical mechanism of employment effect of the ETS considering firm-level market power. In addition, based on the firm-level panel data from 2008 to 2019 of China, the employment effect of each pilot ETS is measured with the method of difference-in-difference-in-differences. Then a moderating effect model is established to verify the role of firm-level market power on the heterogeneous employment effect among the pilot ETSs. Moreover, the employment effect is further decomposed to evaluate the influential mechanism from the perspective of firms’ strategic behavior. It is found that there is negative employment effect of China's ETS policy, due to the significant moderating role of firm-level market power. This decrease in labor demand is mainly dominated by a negative output effect rather than a positive substitution effect because strategic allowance sellers with stronger market power tend to hire fewer employees to reduce carbon emissions by controlling production scale. However, the heterogeneity of policy effects resulted by market structure is also identified in different pilot regions. Employment dividend has been found in Beijing and Tianjin where strategic allowance buyers manipulate the carbon market and hire more employees to consolidate their market power. Therefore, policymakers should improve the design of the ETS to overcome the adverse employment effect duo to the region-specific market structure.

Nexus between carbon, stock, and energy markets in New Zealand: An analysis of causal domains

In the context of Industry 4.0 and the urgent need for a decarbonization transition, the Emissions Trading Scheme (ETS) emerges as a vital and cost-effective tool for promoting global decarbonization. While the connections between the ETS, stock, and the energy markets are theoretically strong, the nature of their causality has been a subject of debate in existing research, especially in New Zealand (NZ). Therefore, we quantitatively explore the potential dynamic linkages within the “Carbon-Stock-Energy” system using more advanced techniques, such as nonparametric Granger causality-in-quantile and cross-quantilogram techniques. Our findings attest to a bidirectional causality between the ETS and the markets examined in the short run. The foreseeability of all lag lengths is, moreover, positive in a bullish market context. Thus, price movements in the NZ ETS could contribute to the volatility of price variations in the stock and the energy markets. Fundamentally, the outcomes of the freshly devised regime-dependent portfolio strategy call for strategic investors to switch their portfolios adaptively between short-term and long-term positions in the ETS. In short, the outcomes may give a deeper glimpse into the complex interconnections between the ETS, stock, and the energy markets in NZ.

Does carbon ETS affect the distribution of labor's slice of the factor income pie? From the low carbon transition perspective

The carbon emission trading scheme (hereafter ETS) impacts firms' production decisions and promotes them to achieve low-carbon transition. This transition entails the movement of both labor and capital factors and consequently triggers re-distribution of factor income. To analyze the impacts of the carbon ETS on factor income distribution, we first theoretically incorporate carbon emission permit as a new factor into the general equilibrium model, shedding light on the potential mechanism. Utilizing city-level panel data from 2003 to 2019 and employing a staggered difference-in-differences (DID) model, we find that the carbon ETS is inclined to benefit labor at the expense of capital, exhibiting a progressively strengthening dynamic effect. Furthermore, we verify the intra-industry and inter-industry low carbon transition are valid mechanisms. Overall, these findings imply that implementing carbon ETS contributes to increasing the labor share of factor income. This study suggests that market-based climate policies have the potential to mitigate excessive reliance on capital and fossil fuels through low-carbon transition. Furthermore, it offers insights into mitigating the declining trend of labor income share.

Energy, economic, and environmental impacts of electricity market-oriented reform and the carbon emissions trading: A recursive dynamic CGE model in China

Electricity market-oriented reform and carbon emissions trading, as the main policies implemented in China's power sector, have a profound impact on China's green and low-carbon transition by promoting resource allocation efficiency and internalizing external environmental costs, respectively. Therefore, this paper constructed a dynamic recursive CGE model to measure the energy, economic, and environmental impacts of carbon emissions trading and electricity market-oriented reform from electricity market structure and pricing mechanism. The results show that the two policies have a synergistic effect on industrial structure optimization, energy consumption structure optimization, and carbon emission reduction. Specifically, the share of value-added of the tertiary sector, the growth rate of coal consumption, the share of thermal power consumption, and carbon emissions in 2030 are reduced by 5.70 %, 18.29 %, 2.55 %, and 2.838 trillion tons, respectively, compared with the scenario without carbon emissions trading and electricity market-oriented reform. However, imperfectly competitive market structures outperform perfectly competitive market structures in energy consumption structure and carbon emission reduction. Electricity price regulation is also more beneficial to GDP growth and increase in residential disposable income compared to price liberalization. To this end, returning emission trading scheme revenues to residents can effectively mitigate the adverse impacts caused by market-oriented reforms.

The impact of adjustment mechanisms on China’s ETS: lessons from the pilot programs

AbstractThis article examines the adjustment mechanisms which have been designed and implemented under China’s experimentations with its emissions trading scheme (ETS). In China, several ETS pilot programs have adopted these mechanisms in the process of cap setting, allowance allocation and price regulation to allow regulatory intervention at different stages of the ETS operation to ensure that particular regulatory objectives are going to be achieved. Using doctrinal analysis, this article provides some critical insights into the specific regulatory design of the flexible mechanisms in China. It highlights their impact on regulatory stability and on the credibility of the ETS program. Considering that the ETS pilots are designed for and operated at local levels for the purpose of testing regulatory design and implementation in order to inform the policymakers at the central government when designing the national scheme, the lessons learned from the ETS pilots with respect to the adjustment mechanism are critical to fulfilling this strategy.

Investigating the carbon curse of natural resource dependence: A carbon trading scheme

Fossil-based natural resources are carbon-intensive, and over-reliance on them often leads to persistent high carbon emissions at national or regional levels, resulting in the carbon curse. Based on the panel data of 114 resource-based cities in China from 2007 to 2020, this paper examines the carbon curse and solutions for these cities from the perspectives of total and intensity of carbon emissions. The results show that: Firstly, due to the different stages of urban development, resource endowment, degree of resource dependence, and policy background, there is a heterogeneity of carbon curse in China's resource-based cities. Secondly, the carbon emission trading policy can effectively mitigate the carbon curse in China's resource-based cities, and the robustness tests demonstrate the validity of this finding. Thirdly, under the carbon emission trading policy, industrial structure upgrading and digital transformation can play a secondary moderating role in resolving the carbon curse in resource-based cities, further strengthening the inhibitory effect of the carbon emission trading scheme on the carbon curse. In contrast, green technology innovation exhibits no enhancement in the impact of the policy. These findings contribute to the existing research on the carbon curse, offering valuable insights and policy implications for effectively addressing this challenge.

Does Korea's carbon emissions trading scheme enhance efficiency for sustainable energy and utilities?

A carbon emissions trading scheme (ETS) should theoretically increase investment in sustainable energy and utilities, promoting energy efficiency in line with sustainable development and energy transition goals. However, whether Korea's ETS improves or impairs energy efficiency for sustainable energy and utilities is disputed. This study addresses this debate, using panel data from 16 sectors in Korea from 2011 to 2020 and employing a dynamic difference-in-differences (DID) method to estimate the effect of Korea's ETS on total factor energy efficiency and its influencing mechanisms. The main findings are as follows. First, while the effect appeared statistically insignificant in the analyses of the industry as a whole, improving energy efficiency demonstrated a moderate effect for the agriculture industry in terms of research and development investment, fixed assets, and operating income when performing heterogeneity and moderation effect analyses. Second, a company's production dependence on labour is unfavourable to improving energy efficiency through ETS. Lastly, the adverse impact of labour dependence is more prominently observed in light industries, particularly in durable goods and agricultural sub-sectors. Therefore, this reaffirms that the key to increasing energy efficiency is to adjust Korea's ETS flexibly, considering the characteristics of each industry.