The Curious Case of the Missing Chinese Emissions

Abstract

This paper characterizes the growth of sulfur dioxide emissions among Chinese manufacturers during the WTO-accession period. By failing to account for contemporaneous changes in markups, we demonstrate that standard emissions analyses overemphasize within-firm reductions in emissions intensity, while undervaluing the role of resource reallocation across firms. We derive an unbiased decomposition of aggregate emissions and find that emissions increased nearly one for one with total production. Although improved technology mitigated emissions growth by 18%–21% between 2000 and 2005, these gains were completely offset by resource reallocation toward dirty producers over the same time frame. Our findings imply that lowering future emissions growth among Chinese manufacturers may require lowering aggregate manufacturing production or fundamentally changing Chinese industrial composition toward cleaner industries.