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How does carbon emission price stimulate enterprises' total factor productivity? Insights from China's emission trading scheme pilots

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  • Wu, Qingyang
  • Wang, Yanying

Abstract

Carbon emission price of Emissions Trading Scheme (ETS) reflects firms' marginal cost of emission, while no previous literature discusses whether it is consistent with the Porter hypothesis or not. Based on a rounded and unique fir-level longitudinal dataset with the information of total factor productivity (TFP) and the economic variables from 2009 to 2019, this paper employs the time-varying difference-in-differences (TDID) model and conducts a post-evaluation of the carbon emission price of ETS pilots on firms' TFP for the first time. The results show that there exists a persistent and significant positive causal relationship between the carbon emission price and firms' TFP. According to a rough estimate, the Chinese firms' TFP should increase by approximately 22.73% if it reaches the same carbon emission price as EU ETS. Our empirical results have passed the placebo test as well as the common trend test, and is mainly consistent with the PSM-DID approach, which can further eliminate the possible selection bias. Furthermore, the influence of the carbon emission price is more evident among the state-owned firms located in the eastern China. While the spillover effect is not significant, which means the price effect is merely effective on target industries. Most importantly, the mechanism analysis shows that it is an effective way to improve firms' TFP by investing more on R&D patents and funds, as well as promoting the status of R&D executive. Based on our findings, we suggest that: 1) the policymakers should restrict CO2 emission quotas so as to guarantee the carbon emission price with a certain upward trend appropriately; 2) researchers should further explore the ways to activate the market-oriented environmental regulation tools from the perspective of the carbon emission price for better designing a unified carbon ETS market.

Suggested Citation

  • Wu, Qingyang & Wang, Yanying, 2022. "How does carbon emission price stimulate enterprises' total factor productivity? Insights from China's emission trading scheme pilots," Energy Economics, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:eneeco:v:109:y:2022:i:c:s0140988322001645
    DOI: 10.1016/j.eneco.2022.105990
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