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Do Firms That Are Disadvantaged by Unilateral Climate Policy Receive Compensation? Evidence from China’s Energy-Saving Quota Policy

Author

Listed:
  • Weiming Lin

    (School of Jinshan, Fujian Agriculture and Forestry University, Fuzhou 350002, China
    These authors contributed equally to this work.)

  • Jianling Chen

    (School of Finance, Fujian Jiangxia University, Fuzhou 350002, China
    These authors contributed equally to this work.)

  • Jianbang Gan

    (Department of Ecosystem Science and Management, Texas A & M University, College Station, TX 77843, USA)

  • Yongwu Dai

    (Anxi College of Tea Science, Fujian Agriculture and Forestry University, Quanzhou 350028, China)

Abstract

Inequities caused by a unilateral climate policy may threaten the sustainability of CO 2 emission reduction efforts by countries and firms, thus endangering sustainable development for humans and the eco-environment. However, few studies have conducted ex-post evaluations on whether environmentally regulated firms receive external compensation such as subsidies, tax reductions, and loan support. Thus, this study investigates whether firms experiencing inequitable conditions under China’s Energy-Saving Quota Policy (ESQP) are financially compensated. It develops a balanced panel of data from 6189 ESQP-regulated and 6189 unregulated firms from 2010 to 2013, and combines a probit model with the difference-in-differences method to conduct empirical analysis. The results show that ESQP-regulated firms receive more subsidy income and lower tax rates than unregulated firms. Of the ESQP-regulated firms, companies with higher energy-saving burdens receive larger subsidies and lower financial expense ratios than those with lower burdens. Additionally, firms that complete their energy-saving quotas are compensated with larger subsidies and/or lower financial expense ratios and tax rates than those that fail to complete them. Finally, state-owned firms receive more subsidies than private ones. Unlike the emission trading schemes implemented worldwide that formulate an exemption mechanism (i.e., free or over-allocated allowances), the ESQP does not exempt regulated firms from their energy-saving responsibilities. Rather, regulated firms receive a greater amount of external compensation in exchange for their reductions in energy consumption.

Suggested Citation

  • Weiming Lin & Jianling Chen & Jianbang Gan & Yongwu Dai, 2022. "Do Firms That Are Disadvantaged by Unilateral Climate Policy Receive Compensation? Evidence from China’s Energy-Saving Quota Policy," Sustainability, MDPI, vol. 14(22), pages 1-20, November.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:22:p:15375-:d:977347
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