The impact of ETS on Productivity in developing economies: A micro-econometric evaluation with Chinese firm-level data

Abstract

We investigate the causal effect of the implementation of the Emissions Trading System (ETS) on the labour productivity of firms in China. We use a large-scale firm-level panel dataset coupled with a variety of estimation techniques such as a parametric difference-in-difference model and a plethora of non-parametric matching approaches. Policymakers often fear that by imposing new costs, an ETS will diminish the economic performance of regulated firms, at least in comparison to firms not required to participate. This concern is particularly salient in developing economies where worries regarding economic development are often paramount. Across all our estimation strategies, and using two distinct datasets, we find no evidence in support of the suggestion that ETS will diminish the competitiveness of regulated firms. Indeed, we find significant evidence in favour of the strong Porter hypothesis, namely that ETS will boost the economic performance of participating firms in China.

Keywords: Emission trading scheme; Time-varying difference-in-difference; Porter hypothesis; policy evaluation.