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Does the emissions trading system in developing countries accelerate carbon leakage through OFDI? Evidence from China

Pei Yu, Zhengfang Cai and Yongping Sun

Energy Economics, 2021, vol. 101, issue C

Abstract: Carbon leakage caused by unbalanced climate policy constraints seriously damages the process of global climate governance. As far as developing countries are concerned, carbon leakage through investment is a more urgent issue. Based on firm level data, we employ PSM-DID to evaluate the impact of China’s pilot ETSs on firm's outward direct investment decision. The empirical results prove that ETS has accelerated both the depth and breadth of outward direct investment from China. The Belt and Road Initiative has facilitated carbon leakage through investment. The host countries without ETS are more attractive than belonging to Belt and Road countries for China's OFDI. The firm's production efficiency, ownership, and marketization level of home region also have important impacts on carbon leakage. China should fully consider carbon leakage in progress of formulating national emissions trading system and actively promote the construction of a green Belt and Road through carbon market linking.

Keywords: Emissions trading system; Carbon leakage; OFDI; Developing countries (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.eneco.2021.105397

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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