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Does the carbon emissions trading system reduce carbon emissions by promoting two-way FDI in developing countries? Evidence from Chinese listed companies and cities

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  • Ma, Guangcheng
  • Qin, Jiahong
  • Zhang, Yumeng

Abstract

How developing countries can effectively promote cities’ carbon emission reduction through the carbon emission trading system (ETS) is a topic worthy of attention in the global carbon reduction campaign. Policy changes in China’s ETS provide a unique opportunity to measure whether ETS impacts carbon emissions through two-way FDI. Hence, this paper employs difference-in-differences (DID) method to test the causal impact of ETS pilot policy on emissions through two-way FDI. The specific results are shown below. We find that the ETS pilot policy’s emission reduction policy significantly inhibited pilot cities’ carbon emissions through two-way FDI. The emission reduction effect is evident in cities with higher administrative levels, better location advantages, and a higher degree of nationalization and energy demand. The mechanism test shows that ETS positively impacts urban carbon emission reduction through the scale, industrial structure, and technical effects of two-way FDI. Among them, the positive effects of technical effect and scale effect are relatively large. The conclusion of this study provides policy enlightenment for giving full play to the carbon reduction effect of the ETS policy. At the same time, it provides experience reference for other developing countries to design ETS for carbon emission control in opening to the outside world.

Suggested Citation

  • Ma, Guangcheng & Qin, Jiahong & Zhang, Yumeng, 2023. "Does the carbon emissions trading system reduce carbon emissions by promoting two-way FDI in developing countries? Evidence from Chinese listed companies and cities," Energy Economics, Elsevier, vol. 120(C).
    • Handle: RePEc:eee:eneeco:v:120:y:2023:i:c:s0140988323000798
    DOI: 10.1016/j.eneco.2023.106581
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    More about this item

    Keywords

    Emissions trading system; Two-way FDI; Climate policy; Developing countries; Quasi-experiment;
    All these keywords.

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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