Carbon Leakage within Firm Ownership Networks

Abstract

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.

Zhenxuan Wang

Assistant Professor

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