Energy Consumption and Carbon Emission Based Industrial Productivity in China: A Sustainable Development Analysis

• Author: Amelia U. Santos‐Paulino,Shiyi Chen
• DOI: http://doi.org/10.1111/rode.12056
• Published date: 01 November 2013
• Date: 01 November 2013

Energy Consumption and Carbon Emission Based

Industrial Productivity in China: A Sustainable

Development Analysis

Shiyi Chen and Amelia U. Santos-Paulino*

Abstract

The paper investigates the determinants of productivity growth in China. It also analyses the sustainability

of the country’s industrial growth by estimating sectoral productivity, accounting for energy usage and

emission since the market-oriented reforms launched in the late 1970s. The empirical analysis indicates that

productivity is the most signif‌icant driver of growth. The substantial productivity improvement of China’s

industry is mainly attributable to high-tech light industrial sectors. Heavy industry lags behind in terms of

productivity and overall technical change.

1. Introduction

China’s economic policy has been the focus of much attention and research. Since the

start of land reforms in the late 1940s, and the market oriented reforms launched in

1978, the country’s development strategy has focused on heavy industry.1The strategy

resulted in the persistence of a dual economy. The remarkable growth of the indus-

trial sector has resulted from the resource transfers from agriculture to industry,

ref‌lecting the so-called price scissors policy. Before the reforms, the heavy industry

absorbed more than 80% of investments, and nearly the same percentage of the labor

force (Fisher-Vanden et al., 2006).

Figure 1 shows that industrial energy consumption and carbon dioxide (CO2) emis-

sion increased since the reforms in the late 1970s, and have maintained a sharp

growth from 2000. China has become the largest consumer of energy and emitter of

CO2in absolute terms, followed only by the USA. Although energy and carbon inten-

sity are decreasing—implying an improvement in energy and emission eff‌iciency—the

absolute value is still large compared with other countries. According to estimations,

based on data from the Statistical Review of World Energy (2007), in 2004 China’s

energy intensity was 4.3, 5.2, and 9 times the value of USA, Germany, and Japan, and

1.5 times larger than that of India.

In this context, the paper tries to address the following questions: what is the effect

of high energy consumption and carbon emission on industrial productivity and

* Santos-Paulino: UNCTAD, Palais des Nations 1211 Geneva-10, Switzerland. Tel: +41-22-917-1234; Fax:

+41-22-917-0046; E-mail: Amelia.Santos-Paulino@unctad.org. Chen: China Center for Economic Studies

(CCES), Fudan University, China. The authors are grateful to the Editor, Professor Kwan Choi, and two

anonymous referees for their constructive comments. We also thank T. N. Srinivasan, Mark Rosenzweig,

Kaivan Munshi, Duncan Thomas, Dilip Mookherjee, Mushf‌iq Mobarak, and participants at the CCES

(Fudan University) and EGC (Yale University) Joint International Conference on Transition and Eco-

nomic Development (TED) in 2009, for benef‌icial discussions and suggestions. The study is sponsored by

UNU-WIDER, National Natural Science Foundation (71173048), National Social Science Foundation

(12AZD047), Ministry of Education (11JJD790007), Shanghai Leading Talent Project, Fudan Zhuo-Shi

Talent Plan and Fudan 985-3 Tyndall Centre Project.

Review of Development Economics, 17(4), 644–661, 2013

DOI:10.1111/rode.12056

© 2013 John Wiley & Sons Ltd

growth? Is the energy- and emission-driven industrial growth sustainable? To this

end, the nonparametric data envelopment analysis (DEA) method will be employed

to estimate industrial total factor productivity (TFP) and perform the growth account-

ing analysis, which quantitatively allows for distinguishing the difference between

level and growth effects. DEA also allows assessing multiple outputs, in contrast to

parametric production function. We concentrate on disaggregated data at the 38 two-

digit industrial sector for the period 1980–2010.

The paper’s contribution is to jointly include the good output, i.e. industrial gross

output, and bad output, CO2emission, into the analysis. The main factors that have

driven industrial growth in China are also addressed. Is it productivity, the most

important indicator to judge the sustainability? Can we identify each sector’s contri-

bution to aggregate industrial productivity? Specif‌ically, what is the relative role of

energy- and emission-intensive heavy industry compared with energy-saving and

emission-abating light industry in productivity growth? How do the technical progress

and eff‌iciency change contribute to the industrial productivity in China?

2. Energy, Emissions and Sustainable Development

The concept of sustainable development was f‌irst def‌ined by the Brundtland Commis-

sion and has become well accepted worldwide following the 1992 Earth Summit and

the adoption of the United Nations’ Agenda 21 (World Commission on Environment

and Development, 1987; United Nations, 1993). Although a variety of practical def‌ini-

tions have emerged in distinct areas, the concept has evolved to encompass economic,

technological, environmental, and social elements.

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

0

10

20

30

40

50

60

70

Year

CO2 Emission (100 million tons)

Energy Consumption (100 million tce)

Carbon Intensity (tons/10 thousand yuan)

Energy Intensity (tce/10 thousand yuan)

Figure 1. Industrial Energy Consumption, CO2Emission and their Intensity in China

after Reforms

Source: Authors’ estimations.

ENERGY & INDUSTRIAL CO2EMISSIONS IN CHINA 645

© 2013 John Wiley & Sons Ltd