Real Effects of China's Carbon Emission Trading System
43 Pages Posted: 13 Jul 2022 Last revised: 7 Oct 2022
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
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