The impact of China’s SO₂ emission trading system on industrial total factor productivity: evidence from industrial sub-sectors at the provincial level

Abstract

Much attention has been devoted to the economic benefits of emission trading systems (ETSs), but research concerning the SO₂ ETS in China is scarce. We examine China’s SO₂ ETS in 2007 from the perspective of industrial sub-sectors and employ the difference-in-difference-in-difference (DDD) model to test whether the SO₂ ETS can promote industrial total factor productivity (TFP). We identify whether it is the average effect or the dynamic effect of the SO₂ ETS that can improve industrial TFP. The heterogeneity test results indicate that this policy has diverse influence in different regions and industries, and the effect is better in pollution-intensive industries. We also find that the policy enhances industrial TFP by promoting efficient technological innovation and capital allocation. Our findings provide evidence that supports the Porter Hypothesis and a guide for the industrialization of developing countries. Chinese policymakers should strengthen environmental enforcement, set quotas accordingly, and encourage technological innovation to improve industrial TFP.

Keywords:

• SO₂ emission trading system
• industrial total factor productivity
• difference-in-difference-in-difference
• Porter Hypothesis

Acknowledgments

We want to thank the Managing Editor Sarah Cherrill and Keith Pilbeam, and three anonymous reviewers for their valuable comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the authors.

Supplemental data

Supplemental data for this article can be accessed here.

Notes

1 2020 Global Environmental Performance Index Report.

2 http://scitech.people.com.cn/n/2014/0303/c376843-24515115.html

3 http://www.gov.cn/zhengce/content/2010-11/22/content_5181.htm

4 The data is from the emission trading center in each pilot region.

5 We merge “Manufacture of Rubber” and “Manufacture of Plastic” into “Manufacture of Rubber and Plastics Products,” “Manufacture of Automobiles,” and “Manufacture of Railways, Ships, Aerospace, and Other Transport Equipment” into “Manufacture of Transport Equipment.”

6 We drop “Professional and Support Activities for Mining,” “Mining of Other Ores,” “Repair Service for Metal Products, Machinery, and Equipment,” “Utilization of Waste Resources,” and “Other Manufacturing.”

7 Because the data for control variables are missing for some industries and years, part of the samples may be lost when adding control variables for regression. The following is the same.

8 https://www.ccchina.org.cn/Detail.aspx?newsId=73317

9 http://www.gov.cn/xinwen/2014-07/23/content_2723073.htm

10 Shenzhen City belongs to Guangdong Province, therefore, we drop Shenzhen and keep six regions in total.

11 High-tech manufacturing industry classification standards: http://www.stats.gov.cn/xxgk/tjbz/gjtjbz/202008/t20200811_1782329.html

Additional information

Funding

This paper is supported by Science and technology Program of Guangzhou, China (Grant No. 202201010616); Guangzhou philosophy and social science planning project (Grant No. 2022GZQN07); the Minister of Education of China New Liberal Art Research and Practice of Reform Project (Grant No. 2021100064); “Climbing” Program from the Ministry of Science and Technology of Guang dong Province (Grant No. pdjh2023a0182).