Management Practices and Climate Policy in China

Soo Keong Yong, Ulrich Wagner, Peiyao Shen, Laure de Preux, Mirabelle Muûls, Ralf Martin and Jing Cao

Journal of the Association of Environmental and Resource Economists, 2024, vol. 11, issue 5, 1065 - 1100

Abstract: We investigate how management quality moderates the impact of carbon pricing on Chinese firms. Based on interviews with managers and lead engineers at manufacturing firms in Hubei and Beijing, we construct a novel index of climate-change-related management practices and link it to firm data from various sources. We document higher average productivity and more green innovation among firms that are well managed according to the index. In an event study of the introduction of regional cap-and-trade schemes for CO2, we analyze how management quality interacts with treatment. While treated firms reduced coal consumption more than control firms, this effect is statistically significant only for well-managed firms. The reduction could have been 25% greater if badly managed firms had been well managed. Our study highlights that good management practices, in particular energy monitoring, enhance the effectiveness of market-based climate policies by enabling firms to rationally comply with those policies.

Date: 2024
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Working Paper: Management Practices and Climate Policy in China (2023)
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