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

Fan Yu, Shilin Zheng, Shuhong Zheng and Chenhao Guo

Energy Economics, 2024, vol. 134, issue C

Abstract: 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.

Keywords: Carbon ETS; Low carbon transition; Factor income distribution; Labor income share; Staggered DID model (search for similar items in EconPapers)
JEL-codes: D33 Q48 Q54 Q56 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:134:y:2024:i:c:s0140988324002779

DOI: 10.1016/j.eneco.2024.107569

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