Exploring the emission spillover effects in production networks under carbon trading market: Insights into complementary and competitive industries

Abstract

As the division of labor deepens, carbon emissions may easily escape through the intertwined production network and well-connected market. As a result, the effectiveness of carbon trading market can no longer be evaluated solely for the regulated regions or industries. Their spillover effects along production networks are necessary for determining whether the policy simply cuts carbon emissions radically or just drives their transmission. To this end, we regarded the pilot carbon emission trading market (PET) in China, as a quasi-natural experiment and employed the multi-regional input-output model to depict the inter-industry linkages. Its spillover impacts on their complementary (including upstream and downstream) and competitive industries have been examined separately, along with the deep mechanism and its heterogeneous feature. Results show that the PET significantly suppresses carbon emissions in upstream industries, while promoting carbon emissions in competitive ones. Furthermore, the PET reduces emissions in upstream industries mainly by decreasing production scale and improving technological innovation. In contrast, the production scale of the downstream industry is not significantly affected, though its energy structure and carbon emission intensity have been improved to a certain extent. Worse still, competitive industries seize the market share of regulated industries and expand production, leading to an increase in carbon emissions.