More power outages, more CO2 emissions: Evidence from self-generation in China's manufacturing firms

Electricity unreliability is common in developing countries, yet its environmental impacts have rarely been systematically evaluated. We quantify the net impact of power outages on CO2 emissions in China from 2003 to 2010 using a novel framework that captures offsetting responses on both sides of the power system. We find that, in response to province-level grid outages, manufacturing firms fully compensate for the reduced electricity supply from more efficient centralized power plants connected to provincial grids by generating electricity with relatively inefficient captive power plants. This leads to a net increase in nationwide CO2 emissions. Quantitatively, firms’ self-generation responses to power outages in our sample lead to a nationwide net increase of approximately 4.898 million tons of CO2 per year. This self-generation response is concentrated among firms in non-locally supported industries, non-state-owned firms, and non-large taxpayers. Our results highlight the importance of grid investment and carbon offset mechanisms for climate policy in developing countries.