Does China's regional emission trading scheme lead to carbon leakage? Evidence from conglomerates

This study uses the list of ETS pilot firms and China's Administrative Registration Database to build the conglomerate of pilot firms and then uses China's National Tax Survey Data from 2009 to 2016 to analyze whether ETS leads to carbon leakage in conglomerates. The results show that ETS promotes carbon transfer from pilot firms to their production-connected firms, carbon emissions and emission intensity of production-connected firms have been significantly improved. After controlling cofounding policies, conducting placebo test and other robustness analysis, the results are still valid. The ways of carbon leakage include output, investment, labor, and energy consumption. Investment transfer occurs at the policy issue stage, and pilot firms tend to transfer production activities with higher energy intensity. Heterogeneity analyses find that the carbon leakage caused by ETS is transferred to regions with low environmental regulations and low labor costs. In further analysis, we verify no negative carbon leakage and compare the carbon emission reduction of EST to pilot firms with the carbon leakage of EST to production-connected firms, though ETS can reduce carbon emissions, its effect is far overestimated.