Can carbon trading policy boost upgrading and optimization of industrial structure? An empirical study based on data from China
Daoping Chen,
Haifeng Liao & Hong Tan
Humanities and Social Sciences Communications volume 11, Article number: 1234 (2024) Cite this article
Open access
Published: 17 September 2024
Abstract
Carbon trading policy is a major mechanism innovation based on the market to deal with climate change and reduce greenhouse gas emissions. As the scale of China’s carbon trading market gradually expands, the impact of carbon trading policy on the upgrading and optimization of industrial structures has attracted much attention. This paper depicts the upgrading of industrial structure through the advancement of industrial structure, and the optimization of industrial structure through the rationalization of industrial structure. Using panel data from 201 prefecture-level and above cities in China from 2004 to 2018, this study empirically investigates the impact and mechanism of carbon trading policy on the upgrading and optimization of industrial structure based on a double difference and mediation effect model. The research results show that carbon trading policy can generally promote the upgrading and optimization of industrial structures, but there are significant differences between promoting the upgrading and optimization of industrial structures. Mechanism analysis shows that carbon trading policy can promote the upgrading and optimization of industrial structure through technological innovation, and technological innovation has an intermediary effect. Heterogeneity analysis shows that there are significant differences between the eastern region and the central and western regions in carbon trading policy promoting the upgrading and optimization of industrial structure. Carbon trading policy is conducive to the upgrading of industrial structure in the eastern region, while they are conducive to the optimization of industrial structure in the central and western regions. In addition, it was found that there are significant differences in the promotion of the upgrading and optimization of industrial structure by carbon trading policy among cities with different levels of human capital, fiscal expenditure, foreign investment, and infrastructure. These conclusions can provide policy inspiration for high-quality green economic development, environmental policy formulation, industrial policy formulation, and urban resource allocation.
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Introduction
Carbon trading policy (CTP) refers to carbon emissions trading policy, which is an environmental regulation tool to solve global warming. Specifically, CTP is a policy measure used by the government to regulate the allocation and trading of total carbon emissions and carbon emission quotas (Zhang et al., 2014). China’s CTP includes six aspects: defining the scope of emission control, setting the total amount, allocating quotas, trading systems, reporting and verification mechanisms, and compliance and punishment mechanisms. CTP aims to create a free trading environment, fully leverage the role of the market in factor allocation, and ultimately achieve optimal allocation of carbon resources. The economic activities of human society are bound by the environment and in turn, affect the environment. Before the industrial revolution, the scale and scope of economic activities were small, and the impact of the environment on economic development and economic activities on the environment was inadvertently ignored. After the industrial revolution, the world seems to have found a fast path to economic development, but the problem of environmental pollution has become increasingly prominent.
In recent decades, environmental pollution has become a key factor restricting economic development. In the 1980s, the international community officially raised the issue of climate change for the first time, believing that the production of large amounts of greenhouse gases such as carbon dioxide from fossil fuels is the main cause of global climate change (Anjos et al., 2022; Jang et al., 2024). Only by working together can countries around the world jointly address this challenge. The market mechanism based on carbon emission trading has become a consensus as a new path for cooperation in solving greenhouse gas emissions problems. In 2011, China approved the pilot work of carbon trading in some provinces and cities, aiming to control greenhouse gas emissions by establishing a carbon trading market and conducting market trading based on greenhouse gas emission quotas. At present, the scale of quota trading volume in China’s pilot areas is second only to the European carbon market, and CTP has become an important means for China to promote enterprise emission reduction (Lv and Bai, 2021).
Industrial structure refers to the allocation and interdependence of resources between industries in a country or region during the process of social reproduction (Kuznets, 1957). It is generally believed that changes in industrial structure include two aspects: upgrading of industrial structure (UIS) and optimization of industrial structure (OIS) (Guan et al., 2022; Song et al., 2024). UIS refers to the process of transforming industrial structural systems from lower-level forms to higher-level forms. OIS refers to the coordination between various industries to maintain strong industrial structure transformation ability and good adaptability. Both UIS and OIS reflect the characteristics of changes in industrial structure. The difference lies in that UIS reflects the process of industrial structure evolution from lower to higher levels, such as the sequential transformation of industrial structure from labor-intensive to capital-intensive, and then to knowledge and technology-intensive, or the transformation from low value-added industries to high value-added industries, or the transformation from primary product industries to manufacturing intermediate and final product industries, which also means the continuous upgrading and innovation of traditional industrial production technology or the improvement of product technology content. OIS reflects the proportion balance and coordination degree between industries and reflects the efficiency of resource allocation, coordination, and utilization among industries. Under the constraints of productivity level and resource endowment, it is necessary to allocate production factors reasonably according to specific demand structures, achieve mutual coordination between industries, and maintain strong industrial structure transformation ability and good adaptability.
When the economy reaches a certain stage of development, UIS and OIS are crucial. Since the reform and opening up, relying on the development strategy of heavy industry first, China’s economy has made remarkable achievements in the world (Du et al., 2024). However, this mode of development has obvious characteristics of high pollution and extensive (Yu et al., 2020). High pollution not only aggravates the burden on the environment, but also makes the coupling degree between the input structure and output structure of factors low, resources are not effectively utilized, the transformation ability and adaptability of industrial structure are at a low level, and the economic growth is insufficient. Extensive development has resulted in a smaller share of industries with higher labor productivity, a lower level of industrial structure upgrading, and a lower quality of economic development. UIS and OIS are necessary processes for sustained economic growth and high-quality development in China (Xi and Zhai, 2022).
Can CTP, as an environmental regulatory tool, promote China’s UIS and OIS while reducing carbon emissions? UIS and OIS are obviously related to the environment. The reason why the current industrial structure is not optimized enough and needs to be upgraded is mainly because the industrial structure is highly polluted and extensive in economic development. An earlier study showed that the economic losses caused by environmental pollution accounted for at least 8 to 15% of the average annual GDP (World Bank report, 2007), which shows that there is still much room for improvement in UIS and OIS. CTP is directly aimed at the environment but may ultimately promote UIS and OIS, and UIS and OIS can better ensure the green nature of GDP. Under the incentive of CTP, enterprises can obtain new competitive advantages through the reallocation of resources, while enterprises at a competitive disadvantage may withdraw from the industry. The result of survival of the fittest makes the industry more coordinated to maintain strong industrial structure transformation ability and good adaptability. Some pollution-intensive enterprises may transfer to areas with low environmental standards in order to reduce environmental costs. This transfer not only increases the coordination between industries but also increases the adaptability between industries. CTP can also promote enterprises to develop advanced environmental protection technology through technological innovation to reduce costs, optimize internal production structure through advanced technology, and realize the upgrading of industrial structure. However, there are other possibilities. CTP has increased the product cost on the whole, and the enterprises in the industry are not adapted to the market at all, let alone the enhancement of conversion ability. Enterprises may also not have enough resources to mobilize for technological innovation, and the crowdsourcing transfer of many pollution-intensive enterprises may produce a synthetic fallacy. These circumstances may make CTP unable to promote UIS and OIS.
As the carbon trading market gradually expands, it is urgent to empirically understand the impact of CTP on China’s UIS and OIS. In relevant research fields, existing literature has mostly focused on the mechanism design of carbon trading, the emission reduction effects of CTP, and the impact of CTP on the economy. A small amount of literature has theoretically analyzed the impact of carbon trading environmental regulations on industrial structure, but there is almost no literature that studies the impact of China’s CTP on industrial structure from an empirical perspective and further explores the mechanism of this impact. Therefore, the research in this paper has important theoretical and practical significance.
Compared with the existing research, the contributions of this paper include the following three aspects. First, it is the first time to use the panel data of prefecture-level and above cities to study the impact of CTP on UIS and OIS. The sample size of panel data of cities at prefecture-level and above is larger, the data contains more information, and the practical characteristics of the impact of CTP on UIS and OIS can be more carefully captured. Secondly, it reveals the mechanism of the impact of CTP on UIS and OIS. In theory, both the “compliance cost hypothesis” and the “Porter hypothesis” indicate that CTP may promote UIS and OIS by promoting technological innovation, but this mechanism has not been verified empirically (Zhang and Duan, 2020; Porter and Linde, 1995). This study empirically found that CTP can promote UIS and OIS by promoting technological innovation. Thirdly, it expands the scope of research on the heterogeneity of the impact of CTP on UIS and OIS. The usual research on heterogeneity only discusses regional heterogeneity. This study not only studies regional heterogeneity but also studies the heterogeneity of urban characteristics in more detail. Characterized by human capital, financial expenditure, foreign investment, and infrastructure level, this study found that the role of CTP in promoting UIS and OIS is also different if the city characteristics are different.
Haifeng Liao & Hong Tan
Humanities and Social Sciences Communications volume 11, Article number: 1234 (2024) Cite this article
Open access
Published: 17 September 2024
Abstract
Carbon trading policy is a major mechanism innovation based on the market to deal with climate change and reduce greenhouse gas emissions. As the scale of China’s carbon trading market gradually expands, the impact of carbon trading policy on the upgrading and optimization of industrial structures has attracted much attention. This paper depicts the upgrading of industrial structure through the advancement of industrial structure, and the optimization of industrial structure through the rationalization of industrial structure. Using panel data from 201 prefecture-level and above cities in China from 2004 to 2018, this study empirically investigates the impact and mechanism of carbon trading policy on the upgrading and optimization of industrial structure based on a double difference and mediation effect model. The research results show that carbon trading policy can generally promote the upgrading and optimization of industrial structures, but there are significant differences between promoting the upgrading and optimization of industrial structures. Mechanism analysis shows that carbon trading policy can promote the upgrading and optimization of industrial structure through technological innovation, and technological innovation has an intermediary effect. Heterogeneity analysis shows that there are significant differences between the eastern region and the central and western regions in carbon trading policy promoting the upgrading and optimization of industrial structure. Carbon trading policy is conducive to the upgrading of industrial structure in the eastern region, while they are conducive to the optimization of industrial structure in the central and western regions. In addition, it was found that there are significant differences in the promotion of the upgrading and optimization of industrial structure by carbon trading policy among cities with different levels of human capital, fiscal expenditure, foreign investment, and infrastructure. These conclusions can provide policy inspiration for high-quality green economic development, environmental policy formulation, industrial policy formulation, and urban resource allocation.
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The influence and acting pattern of China's national carbon emission trading scheme on regional ecologicalization efficiency of industry
Article Open access13 July 2022
The impact of intellectual property demonstration policies on carbon emission efficiency
Article Open access03 July 2024
Threshold effect of technological innovation on carbon emission intensity based on multi-source heterogeneous data
Article Open access04 November 2023
Introduction
Carbon trading policy (CTP) refers to carbon emissions trading policy, which is an environmental regulation tool to solve global warming. Specifically, CTP is a policy measure used by the government to regulate the allocation and trading of total carbon emissions and carbon emission quotas (Zhang et al., 2014). China’s CTP includes six aspects: defining the scope of emission control, setting the total amount, allocating quotas, trading systems, reporting and verification mechanisms, and compliance and punishment mechanisms. CTP aims to create a free trading environment, fully leverage the role of the market in factor allocation, and ultimately achieve optimal allocation of carbon resources. The economic activities of human society are bound by the environment and in turn, affect the environment. Before the industrial revolution, the scale and scope of economic activities were small, and the impact of the environment on economic development and economic activities on the environment was inadvertently ignored. After the industrial revolution, the world seems to have found a fast path to economic development, but the problem of environmental pollution has become increasingly prominent.
In recent decades, environmental pollution has become a key factor restricting economic development. In the 1980s, the international community officially raised the issue of climate change for the first time, believing that the production of large amounts of greenhouse gases such as carbon dioxide from fossil fuels is the main cause of global climate change (Anjos et al., 2022; Jang et al., 2024). Only by working together can countries around the world jointly address this challenge. The market mechanism based on carbon emission trading has become a consensus as a new path for cooperation in solving greenhouse gas emissions problems. In 2011, China approved the pilot work of carbon trading in some provinces and cities, aiming to control greenhouse gas emissions by establishing a carbon trading market and conducting market trading based on greenhouse gas emission quotas. At present, the scale of quota trading volume in China’s pilot areas is second only to the European carbon market, and CTP has become an important means for China to promote enterprise emission reduction (Lv and Bai, 2021).
Industrial structure refers to the allocation and interdependence of resources between industries in a country or region during the process of social reproduction (Kuznets, 1957). It is generally believed that changes in industrial structure include two aspects: upgrading of industrial structure (UIS) and optimization of industrial structure (OIS) (Guan et al., 2022; Song et al., 2024). UIS refers to the process of transforming industrial structural systems from lower-level forms to higher-level forms. OIS refers to the coordination between various industries to maintain strong industrial structure transformation ability and good adaptability. Both UIS and OIS reflect the characteristics of changes in industrial structure. The difference lies in that UIS reflects the process of industrial structure evolution from lower to higher levels, such as the sequential transformation of industrial structure from labor-intensive to capital-intensive, and then to knowledge and technology-intensive, or the transformation from low value-added industries to high value-added industries, or the transformation from primary product industries to manufacturing intermediate and final product industries, which also means the continuous upgrading and innovation of traditional industrial production technology or the improvement of product technology content. OIS reflects the proportion balance and coordination degree between industries and reflects the efficiency of resource allocation, coordination, and utilization among industries. Under the constraints of productivity level and resource endowment, it is necessary to allocate production factors reasonably according to specific demand structures, achieve mutual coordination between industries, and maintain strong industrial structure transformation ability and good adaptability.
When the economy reaches a certain stage of development, UIS and OIS are crucial. Since the reform and opening up, relying on the development strategy of heavy industry first, China’s economy has made remarkable achievements in the world (Du et al., 2024). However, this mode of development has obvious characteristics of high pollution and extensive (Yu et al., 2020). High pollution not only aggravates the burden on the environment, but also makes the coupling degree between the input structure and output structure of factors low, resources are not effectively utilized, the transformation ability and adaptability of industrial structure are at a low level, and the economic growth is insufficient. Extensive development has resulted in a smaller share of industries with higher labor productivity, a lower level of industrial structure upgrading, and a lower quality of economic development. UIS and OIS are necessary processes for sustained economic growth and high-quality development in China (Xi and Zhai, 2022).
Can CTP, as an environmental regulatory tool, promote China’s UIS and OIS while reducing carbon emissions? UIS and OIS are obviously related to the environment. The reason why the current industrial structure is not optimized enough and needs to be upgraded is mainly because the industrial structure is highly polluted and extensive in economic development. An earlier study showed that the economic losses caused by environmental pollution accounted for at least 8 to 15% of the average annual GDP (World Bank report, 2007), which shows that there is still much room for improvement in UIS and OIS. CTP is directly aimed at the environment but may ultimately promote UIS and OIS, and UIS and OIS can better ensure the green nature of GDP. Under the incentive of CTP, enterprises can obtain new competitive advantages through the reallocation of resources, while enterprises at a competitive disadvantage may withdraw from the industry. The result of survival of the fittest makes the industry more coordinated to maintain strong industrial structure transformation ability and good adaptability. Some pollution-intensive enterprises may transfer to areas with low environmental standards in order to reduce environmental costs. This transfer not only increases the coordination between industries but also increases the adaptability between industries. CTP can also promote enterprises to develop advanced environmental protection technology through technological innovation to reduce costs, optimize internal production structure through advanced technology, and realize the upgrading of industrial structure. However, there are other possibilities. CTP has increased the product cost on the whole, and the enterprises in the industry are not adapted to the market at all, let alone the enhancement of conversion ability. Enterprises may also not have enough resources to mobilize for technological innovation, and the crowdsourcing transfer of many pollution-intensive enterprises may produce a synthetic fallacy. These circumstances may make CTP unable to promote UIS and OIS.
As the carbon trading market gradually expands, it is urgent to empirically understand the impact of CTP on China’s UIS and OIS. In relevant research fields, existing literature has mostly focused on the mechanism design of carbon trading, the emission reduction effects of CTP, and the impact of CTP on the economy. A small amount of literature has theoretically analyzed the impact of carbon trading environmental regulations on industrial structure, but there is almost no literature that studies the impact of China’s CTP on industrial structure from an empirical perspective and further explores the mechanism of this impact. Therefore, the research in this paper has important theoretical and practical significance.
Compared with the existing research, the contributions of this paper include the following three aspects. First, it is the first time to use the panel data of prefecture-level and above cities to study the impact of CTP on UIS and OIS. The sample size of panel data of cities at prefecture-level and above is larger, the data contains more information, and the practical characteristics of the impact of CTP on UIS and OIS can be more carefully captured. Secondly, it reveals the mechanism of the impact of CTP on UIS and OIS. In theory, both the “compliance cost hypothesis” and the “Porter hypothesis” indicate that CTP may promote UIS and OIS by promoting technological innovation, but this mechanism has not been verified empirically (Zhang and Duan, 2020; Porter and Linde, 1995). This study empirically found that CTP can promote UIS and OIS by promoting technological innovation. Thirdly, it expands the scope of research on the heterogeneity of the impact of CTP on UIS and OIS. The usual research on heterogeneity only discusses regional heterogeneity. This study not only studies regional heterogeneity but also studies the heterogeneity of urban characteristics in more detail. Characterized by human capital, financial expenditure, foreign investment, and infrastructure level, this study found that the role of CTP in promoting UIS and OIS is also different if the city characteristics are different.
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