Carbon Leakage within Firm Ownership Networks


This paper evaluates the carbon leakage of China’s regional pilots of emission trading system (ETS). Our analysis leverages firm-level tax records, ownership networks, and the quasi-experimental nature of the ETS pilots. We find that ETS-regulated firms shift production to their unregulated sister entities in the same ownership network, resulting in an 8.3% increase in carbon emissions from these unregulated partners. We also show that the leakage mainly occurs among low-emission firms, under the mass-based allocation rule, and in areas with low regulatory risks. Accounting for carbon leakage, the aggregate effect of China’s ETS pilots on firm emissions becomes statistically insignificant.

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Zhenxuan Wang
Zhenxuan Wang

My research interests lie at the intersection of environmental and energy economics, climate policy, development economics, and public economics.