Do China's pilot emissions trading schemes lead to domestic carbon leakage? Perspective from the firm relocation

Xian Pan and Lihong Yu

Energy Economics, 2024, vol. 132, issue C

Abstract: The limited geographical coverage of pilot emissions trading schemes (ETS) raises domestic carbon leakage risks. Since relocation represents a primary channel that causes carbon leakage, this paper investigates the impact of China's pilot ETSs on firms' cross-provincial relocation with a method combining propensity score matching and staggered difference-in-differences. The empirical results, based on the data of Chinese listed industrial firms from 2009 to 2020, show that the ETS has accelerated firm relocation by increasing negative attention and social capital investments. According to the threshold analysis, firms with sufficient abatement efforts do not undertake relocation strategies. The theoretical analysis can also be confirmed by further investigations on the price signal distortions and the negative impact of relocation on carbon prices. Moreover, the study also demonstrates the heterogeneous effects across firm characteristics, industry types, and policy design features. Overall, these findings provide a reference for China's government to prioritize the establishment of domestic leakage prevention mechanisms for ETS.

Keywords: China's emissions trading scheme; Domestic carbon leakage; Firm relocation; Abatement effort; Carbon price (search for similar items in EconPapers)
JEL-codes: Q52 Q54 Q58 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:132:y:2024:i:c:s0140988324000422

DOI: 10.1016/j.eneco.2024.107334

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