Carbon emission reduction characteristics for China's manufacturing firms: Implications for formulating carbon policies

Abstract

The rapid development of China's manufacturing industry since China's accession to WTO in 2001 has dramatically increased China's carbon emissions. To inform the carbon policy development of China's manufacturing industry, this study constructed a DEA-GS (data envelopment analysis and grid search) model from a cost perspective to understand the their emission reduction characteristics. Using a large sample of manufacturing firms from 2008 to 2011, the carbon pricing and reduction potential of China's manufacturing firms was explored by analyzing the firms' marginal abatement costs. The results showed that: (a) with increasing marginal abatement costs, the growth rates of both cumulative emission reduction activities and emission reduction of these firms gradually slowed down. When the marginal abatement cost exceeds 200 Yuan/ton, neither the number of reduction activities nor the amount of reduced emissions increase. (b) The impact of marginal abatement costs on the numbers of reduction activities and firms in each sub-sector is heterogeneous. (c) The emission reduction behaviors of manufacturting firms, determined by carbon pricing, are mostly concentrated in developed areas or around large cities. In contrast, areas with substantial emission reductions are more scattered. The results suggest that The emission reduction characteristics of sub-sectors should be fully considered when formulating carbon policies for China's manufacturing industry. The carbon price for the China's manufacturing industry should not exceed 200 Yuan/ton. Furthermore, the carbon policy of China's manufacturing industry should have broader coverage, rather than merely covering developed areas.

Keywords: Carbon policy; China; Manufacturing industry; Marginal abatement cost.