Management Practices and Climate Policy in China

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 on climate-change related management practices and link it to firm data from various sources. We document that well-managed firms are on average more productive and engage more in green innovation than the rest. We conduct an event study of the introduction of a regional cap-and-trade scheme for CO2 in Beijing and find that treated firms reduced coal consumption more than control firms, but this effect is statistically significant only for well-managed firms. In the absence of such firms, our empirical estimates imply that aggregate coal use would have increased rather than decreased following the introduction of carbon pricing. This highlights the importance of good management practices for market-based climate policies to be effective.

Keywords: climate policy; firm behavior; management practices; emissions trading scheme; policy evaluation

JEL Classification: D22, O31, Q48, Q54