Can carbon emission trading policy break China's urban carbon lock-in?

Greenhouse gas emissions from the use of fossil energy are the main drivers of global warming. China's dominant consumption of fossil energy necessitates adjustments in its energy consumption structure to break free from the carbon lock-in (CLI) phenomenon. Market-based environmental regulations, represented by the carbon trading market (CTM), play an important role in achieving the dual carbon goals of China. Using panel data of 270 prefecture-level cities in China from 2005 to 2020, this study applies a difference-in-difference model to identify the effect of CTM on urban CLI, analyze its transmission mechanism, and further examine the impact of urban characteristic heterogeneity on policy effects from multiple perspectives. Results show that the construction of CTM significantly reduces the degree of CLI of pilot cities; (2) CTM mainly affects urban CLI by promoting urban green technology innovation, industrial structure upgrading, and public green behavior; and (3) the inhibitory effect of CTM on CLI is more significant in cities with high carbon price, industrialization, and digital finance levels. The primary paths toward realizing carbon unlocking include optimizing the institutional design for CTM, enhancing the effective promotion and application of low-carbon technologies, cultivating the green awareness of the public, and increasing government investments in energy-saving and emission reduction techniques.

Green credit guideline and enterprise export green-sophistication.

Green credit is a major policy innovation to guide enterprises to participate in environmental governance actively. This study uses the data of Chinese A-share listed companies from 2007 to 2016, takes the green credit guideline (GCG) issued in 2012 as a quasi-natural experiment, and uses a difference in difference (DID) model to test the effect of GCG on the enterprises' export green-sophistication (EGS) and its internal and external mechanisms. The study finds that GCG improves enterprises' EGS and research and development (R&D) investment is the intermediation channel for GCG to affect EGS. Results of heterogeneity analysis show that the role of GCG in promoting EGS is significantly reflected in enterprises that the government does not subsidize, enterprises in areas with a low degree of financial marketization development, state-owned enterprises, and enterprises with a high degree of equity incentive.

The COVID-19 pandemic and energy transitions: Evidence from low-carbon power generation in China.

The Corona Virus Disease 2019 (COVID-19) has led to a decline in carbon emissions or an improvement in air quality. Yet little is known about how the pandemic has affected the "low-carbon" energy transition. Here, using difference-in-differences (DID) models with historical controls, this study analyzed the overall impact of COVID-19 on China's low-carbon power generation and examined the COVID-19 effect on the direction of the energy transition with a monthly province-specific, source-specific dataset. It was found that the COVID-19 pandemic increased the low-carbon power generation by 4.59% (0.0648 billion kWh), mainly driven by solar and wind power generation, especially solar power generation. Heterogeneous effects indicate that the pandemic has accelerated the transition of the power generation mix and the primary energy mix from carbon-intensive energy to modern renewables (such as solar and wind power). Finally, this study put forward several policy implications, including the need to promote the long-term development of renewables, green recovery, and so on.

The potential for China's outward foreign direct investment and its determinants: A comparative study of carbon-intensive and non-carbon-intensive sectors along the Belt and Road.

Ensuring that the Belt and Road Initiative (BRI) is green and low-carbon is crucial to tackling climate change while simultaneously promoting a win-win outcome of BRI countries. In recent years, China has altered its BRI Foreign Direct Investment (FDI) portfolio by reducing investment in carbon-intensive sectors and increasing it in non-carbon-intensive sectors. Therefore, it is particularly important to assess the potential of these two types of sectors in attracting China's FDI, and to identify the major determinants of investment. In our study, the results of a stochastic frontier gravity model and inefficiency model on 2008-2017 data covering 132 countries, including 98 BRI countries, show that the potential for China's FDI in non-carbon-intensive sectors is higher than that in carbon-intensive sectors. Furthermore, the determinants of China's FDI in these two types of sectors are significantly different. The study's results can be used to inform China's investment policy, and render positive contributions to the green BRI based on location and sector information.

Does green finance restrain corporate financialization?

Green financial policy is one of the important policy tools for China to implement the national carbon peak goal and carbon neutral vision through financial means. This policy has an important impact on the business strategy of corporates. Based on the data of listed corporates from 2013 to 2020, this study examines the impact mechanism of China's green financial reform and innovation pilot zones (GFRIPZ) on corporate financialization (CF) using the difference-in-difference method. The results show the following: (1) The implementation of GFRIPZ significantly restrains the CF. (2) GFRIPZ reversed the short-sighted behavior of firms and guided them to accelerate the green transformation and upgrading for long-term development. Firms' environmental capital expenditure and research and development expenditure increased significantly. (3) The restraining effect of GFRIPZ on CF is stronger in state-owned firms, firms with low-degree managerial myopia, and high-polluting firms. The research clearly identifies the causal relationship and mechanism between GFRIPZ and CF and reveals the formation mechanism and solution path of CF from the green finance perspective. In addition, this study has implications for guiding the green transformation of entity firms and stopping firms from deviating from their intended purpose.

Impact of dual control system of energy consumption and intensity on cost of debt financing: micro-evidence from Chinese listed companies.

Capital providers have placed increasing importance on risks associated with transitioning to a low-carbon economy. This study investigates the causal link between energy regulation and cost of debt financing by exploiting regional variations in stringency of the dual control system of total energy consumption and energy intensity (dual controls) to construct a continuous difference-in-difference model. We use a sample of A-share listed firms in 2010-2020 and find that tighter energy regulation leads to higher cost of debt financing. We find that the underlying mechanism is risk premium brought by compliance cost and uncertainties. Further analysis indicates that the impact of dual controls is mainly driven by non-state-owned firms. Lastly, capital providers did not differentiate the interest rates they charge companies based on their level of green transition.

Can the green finance improve export green-sophistication? New insights from China.

The green financial policy is one of the important policy tools for China to achieve the national carbon peak goal and carbon neutrality through financial means. How financial development affects the growth of international trade has been an important research topic. This paper uses the Pilot Zones for Green Finance Reform and Innovations (PZGFRI) implemented in 2017 as a natural experiment drawing on the relevant data of Chinese provinces' panel data from 2010 to 2019. It adopts a difference in difference (DID) model to assess the impact of green finance on export green-sophistication (EGS). The results report that the PZGFRI significantly improves EGS, and the result remains robust after robustness checks such as parallel trend and placebo. The PZGFRI improves EGS by boosting total factor productivity, industrial structure upgrading, and green technology innovation. Moreover, the role of PZGFRI in promoting EGS is significantly reflected in the central and western regions and the regions with low-marketization levels. This study confirms that green finance is an important factor influencing the quality improvement of China's exports, which provides effective evidence from the reality level for China to vigorously promote the construction of a green financial system in recent years.

The influence of China's pollution emissions trading system on the listed companies' export products' quality.

The pollution emissions trading system (PETS) pilot policy is China's first large-scale implementation of market-based environmental regulations; whether it can reduce pollution emissions and improve the export competitiveness is crucial for China to achieve the coordinated development of environment and economy. Based on the panel data of Chinese listed companies from 2003 to 2016, this paper considers the PETS pilot policy as a natural experiment, and investigates the impact of the policy on export products' quality using the difference-in-difference (DID) model. We found that (1) the PETS pilot policy has significantly improved the quality of listed companies' export products. (2) Technological innovation plays a partial intermediary role in promoting export products' quality by the PETS pilot policy; the "Porter Hypothesis" has been verified in China. (3) When the listed companies with different characteristics face the PETS pilot policy, the quality of their export products will show a differentiated development trend. Based on the above research conclusions, we put forward corresponding recommendations for China to realize the coordinated development of environment and trade.

China's carbon allowance allocation strategy under the EU carbon border adjustment mechanism: An integrated non-parametric cost frontier approach.

The implementation of the European Union (EU) Carbon Border Adjustment Mechanism (CBAM) will affect the cost efficiency of Chinese exporters, and few studies have considered how to deal with its impact from the carbon market perspective. Based on this, this paper constructs two price-variable resource allocation (VPRA) models to investigate China's allowance allocation strategies to mitigate the impact of the EU CBAM from a carbon market perspective. This paper takes the steel and cement industries in each province of China for example for cost efficiency assessment and carbon allowance allocation, and finds that: (1) The EU CBAM has a negative impact, and it is necessary to incorporate the CBAM into the top-level system design of allowance allocation to obtain an allowance allocation scheme that maintains the cost efficiency level of each industry. (2) A higher and more stable carbon price in China can effectively counteract the impact of the EU CBAM and ensure that the cost efficiency of each industry does not fluctuate significantly. (3) When the Chinese carbon price exceeds 60 RMB/ton, the impact of the EU CBAM on the cost efficiency of each industry will become significantly smaller. (4) Measures to reduce the number of products exported to the EU are not effective in mitigating the impact of the EU CBAM when the number of products exported to the EU exceeds a certain rate. The findings of this paper provide useful policy insights for China and other developing countries to actively address the challenges of the EU CBAM.

Decomposition and prediction of China's carbon emission intensity towards carbon neutrality: From perspectives of national, regional and sectoral level.

China has actively participated in global climate governance and put forward its ambitious carbon neutrality target. The formulation of scientific plans has become the primary concern of the policy makers, especially for the 14th and 15th Five-Year Plans (FYP) which are important periods to secure the neutrality pledge and transform the whole economy. Since the carbon emission intensity play a key role in achieving carbon neutrality, it is necessary to summarize and explore the evolution trend of carbon emission intensity as well as its driving factors. Therefore, an integrated decomposition framework is developed to study the carbon emission intensity in the past three FYPs from the national, regional and industrial levels. Furthermore, towards the carbon neutrality target, moderate scenario and advanced scenario are designed to predict the future evolution trend of the carbon emission intensity and driving factors in the 14th and 15th FYPs (2021-2030). The main results are as follows: (1) During the three FYPs, factor substitution is the main force contributing to the decreased carbon emission intensity, but this effect gradually decreased. This indicates that it is an inevitable trend to further promote internal optimization and reform of energy system. (2) The change of energy structure exerts a positive effect on the carbon emission intensity decline, but it is not significant, especially in the industrial sector. (3) With the rich factor endowment, central and eastern regions can reduce carbon emission intensity through factor substitution and industrial structure transformation, while the western region is not. (4) In the future, the role of industrial structure optimization and technology progress will be gradually significant. Finally, our findings provide practical guidance on achieving carbon emission intensity reduction and enlightenments on policymaking.