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The Annals of Regional Science

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28-01-2024 | Special Issue Paper

Carbon emissions from the perspective of regional competition: evidence from China’s low-carbon city policy

Authors: Meng-Ting Chen, Shiyan Zhang, Jiakai Zhang

Published in: The Annals of Regional Science | Issue 2/2024

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Abstract

Global warming poses a prominent challenge to every country. As one of the largest developing countries, China has experienced rapid economic transformation in its pursuit of sustainable development. This paper delves into a quasi-natural environmental experiment conducted in China, specifically focusing on the low-carbon city program initiated in 2010. Our study uncovers the phenomenon of regional competition among Chinese local governments with regard to carbon emissions, which in turn generates spillover effects stemming from the policy. To identify the effects of the low-carbon city policy on both economic and environmental development, we employ the spatial difference-in-differences approach. Our analysis suggests that reductions in carbon emissions in the pilot cities will lead to a decrease in carbon emissions and economic performance in the surrounding areas. Finally, by exploring firm-level data, we find that the policy significantly impacts large private firms operating in non-secondary industries.

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The EKC posits an inverted U-shaped relationship between environmental degradation and economic growth, where the initial economic growth leads to an increase in environmental degradation, but as countries become wealthier, environmental degradation decreases. The exact point at which the turning point occurs is dependent on the specific environmental indicator being studied.

Some studies find evidence of the EKC, while others do not. For instance, a study by Ozturk and Acaravci (2010) found evidence of the EKC for carbon dioxide emissions in Turkey, while another study by Jalil and Mahmud (2009) found no evidence of the EKC for carbon dioxide emissions in Pakistan. Others have suggested that the relationship between carbon emissions and economic growth is more complex than what the EKC suggests. For example, a study by Tamazian et al. (2009) found that the relationship between carbon emissions and economic growth is nonlinear and that it varies across different income levels.

Some studies have suggested that such policies may have negative short-term impacts on economic growth but long-term benefits in terms of reducing the negative effects of climate change. Other studies have suggested that carbon mitigation policies can have positive impacts on economic growth, particularly if the policies promote the development of new green industries and technologies. For instance, a study by Jacoby et al. (2015) found that investing in renewable energy in developing countries can create new economic opportunities and generate employment while simultaneously reducing carbon emissions.

Empirical evidence on the race to the bottom hypothesis is mixed. Some studies suggest that regional competition for carbon emissions does lead to a reduction in environmental standards, particularly in developing countries where attracting foreign investment is a priority. For instance, a study by Cole and Elliott (2003) found that countries with higher levels of foreign direct investment have lower environmental standards. However, other studies suggest that regional competition for carbon emissions can also lead to a “race to the top” in terms of environmental standards. For instance, a study by B¨ohringer et al. (2010) found that European Union (EU) countries with stricter environmental standards are more competitive in attracting investment.

Zhang and Cheng (2009) is the first test of the causality between carbon emission and economic growth using Chinese data. Additionally, see Hill and Magnani (2002), Stern (2004), and Dinda (2004) for extensive surveys of the EKC.

According to Zhang et al. (2023), the pressure of regional competition in China has led local governments to ease environmental regulations as a strategy to lure industrial enterprises. Additionally, Wu et al. (2020) demonstrate that the competitive nature among Chinese local governments has acted as an impediment to regional green development.

Our sample for this study covers only 64 pilot cities since data were unavailable for Sanya, Lhasa, and Xining. In addition, these three cities are far away from other cities. The sample probably includes these three cities, which probably leads to bias in the estimation of the emissions in regional competition.

The IPE is a platform that comprehensively collects data on environmental quality, carbon emissions, and regulatory records of pollution sources (https://wwwen.ipe.org.cn/index.html). Data on carbon emissions originally are from the China Products Carbon Footprint Factors Database (CPCD) estimated by the China City Greenhouse Gas Working Group (CCG) (http://lca.cityghg.com/). CCG organized 53 professional researchers to build a set of greenhouse gas emission coefficients for the full life cycle of Chinese products free of charge and make them public.

To address the issues of how local governments compete without observing the actions taken by others, we use the SPL carbon per capita lagged by one period as our new explanatory variable. The results in Table 10 are consistent with our findings in Table 3.

We follow Goodman-Bacon (2021) and Liu and Mao (2019) to adopt the two-way fixed effects (TWFE) DiD strategy.

100%*(exp (-0.2063)-1) = -18.64%

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Title: Carbon emissions from the perspective of regional competition: evidence from China’s low-carbon city policy
Authors: Meng-Ting Chen
Shiyan Zhang
Jiakai Zhang
Publication date: 28-01-2024
Publisher: Springer Berlin Heidelberg
Published in: The Annals of Regional Science / Issue 2/2024
Print ISSN: 0570-1864
Electronic ISSN: 1432-0592
DOI: https://doi.org/10.1007/s00168-023-01255-w

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