Structural decomposition analysis of the SO2 emissions of China’s manufacture across the sector, sub-sector, and firm levels

As one of the largest sulfur dioxide (SO₂) emitters in the world, China has long been under pressure to reduce its SO₂ emission. The total amount of SO₂ emissions in China grew continuously between 2000 and 2006 and has been decreasing since. The total SO₂ emission of the manufacturing industry has remained stable, while Gross Domestic Product and manufacturing gross output have maintained sustained growth. In this study, we explored the factors underlying these opposite trends by decomposing total SO₂ emission changes of the manufacturing industry to the micro firm level. Results show that: (1) the scale effect is unambiguously positive; (2) the composition effect varies with the decomposition dimension; (3) the substitution effect, which reflects value-added share change, varies with both decomposition dimension and study period; and (4) the technique effect (the combined effect of energy intensity and pollution energy consumption share changes) is consistently negative. In view of future uncertainties, it is only by consolidating the technique effect that total SO₂ emission can be reduced effectively. These results on the channels affecting SO₂ emission can be used as a reference in the design of policies to effectively reduce SO₂ emissions from the manufacturing industry.