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

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  • Yu, Fan
  • Zheng, Shilin
  • Zheng, Shuhong
  • Guo, Chenhao

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.

Suggested Citation

  • Yu, Fan & Zheng, Shilin & Zheng, Shuhong & Guo, Chenhao, 2024. "Does carbon ETS affect the distribution of labor's slice of the factor income pie? From the low carbon transition perspective," Energy Economics, Elsevier, vol. 134(C).
  • Handle: RePEc:eee:eneeco:v:134:y:2024:i:c:s0140988324002779
    DOI: 10.1016/j.eneco.2024.107569
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    More about this item

    Keywords

    Carbon ETS; Low carbon transition; Factor income distribution; Labor income share; Staggered DID model;
    All these keywords.

    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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