Real Effects of China's Carbon Emission Trading System

43 Pages Posted: 13 Jul 2022 Last revised: 7 Oct 2022

See all articles by Jingzhe Liu

Jingzhe Liu

Tsinghua University - School of Economics & Management

Hao Wang

Tsinghua University

Lihong Zhang

Tsinghua University - School of Economics & Management

Date Written: July 1, 2022

Abstract

After being covered by the emission trading system, firms significantly increased investment in carbon reduction projects and expanded the production workforce. The effects are attributable to China's two-stage emission allowance allocation scheme that encourages production from carbon-efficient entities. The lenient abatement policy did not impose strict emission caps in the early stage, helping to balance between promoting firms to act and facilitating smooth transitions without causing abrupt productivity shocks. Firms exhibited no significant losses in productivity and efficiency. However, workers' real wages decreased, voicing a welfare concern.

Keywords: Carbon abatement, Emission trading system, Allowance allocation, Real effects, Economic welfare

JEL Classification: G30, Q52, Q58

Suggested Citation

Liu, Jingzhe and Wang, Hao and Zhang, Lihong, Real Effects of China's Carbon Emission Trading System (July 1, 2022). Available at SSRN: https://ssrn.com/abstract=4153029 or http://dx.doi.org/10.2139/ssrn.4153029

Jingzhe Liu (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Hao Wang

Tsinghua University ( email )

318 Weilun Building
Tsinghua University
Beijing, 100084
China
86 10 62797482 (Phone)
86 10 62794554 (Fax)

Lihong Zhang

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

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