Impact of Low-carbon City Construction on Financing, Investment, and Total Factor Productivity of Energy-intensive Enterprises.

• Author: Wen, Huwei

1. INTRODUCTION

   Climate change is a major global challenge, and the transition of industrial development to a low-carbon economy is the only way to promote global sustainable development. China is a major emitter of greenhouse gases (GHG), and the Chinese government is fully aware of its responsibility in addressing global warming. Thus, the country is actively exploring the development model of a low-carbon society. At the 75th General Debate of the United Nations, President Xi pledged that China would adopt more effective policies, and strive to reach the peak of carbon dioxide (C[O.sub.2]) emissions by 2030 so that carbon neutrality can be achieved by 2060. Whether as a result of the pressure of international public opinion to assume carbon responsibility or the need for domestic green development, promoting the low-carbon transformation of the Chinese economy is necessary (Yang and Li, 2013; Lin and Tan, 2017; You et al., 2022). In fact, China launched the low-carbon city pilot (LCCP) policy in 2010 to explore the path of low-carbon development through a series of concrete measures.

   However, the central government has no unified evaluation standards for the development of the LCCP, and the related policy is characterized by weak constraints on the local government. Thus, implementing the LCCP policy may or may not be beneficial to the efficiency of economic development. On the one hand, the policy may be weakened due to the lack of incentives in the responsibility system (Khanna et al., 2014). Although increasing the investment in carbon technology is an effective way to decouple carbon reduction from economic growth, how to balance environmental benefits and economic costs is a major challenge for local governments (Lee et al., 2022; Yu et al., 2020; Wu et al., 2020). On the other hand, due to the regional differences and stage characteristics of industrial development, the low-carbon transformation path of energy-intensive industries is not completely consistent, and the autonomy of local governments may improve the implementation effect of low-carbon policies (Xu and Chen, 2021). Other difficulties are encountered in the low-carbon transition, such as understanding the response strategies of various actors and designing policies that suit the development of local industries, and local governments own the advantage of information rather than the central government (Su et al., 2012; Cai et al., 2017; Wang et al., 2021).

   Notably, high degree of technology uncertainty and market risk occur in the process of low-carbon transition, especially for enterprises in energy-intensive industries (Karplus and Zhang, 2017; Lieu et al., 2020; Lee and Lee, 2022). These enterprises would face regulatory risk from the government or credit constraints from financial institutions if they fail to reduce their energy use or adopt clean energy (Wang and Lee, 2022; Song et al., 2020). The energy-intensive industries in China consume a large part of fossil energy and account for a high proportion of polluting emission. According to National Bureau of Statistics of China, energy consumption in these industries accounts for approximately 73% of energy consumption and C[O.sub.2] emissions account for approximately 78% of C[O.sub.2] emissions in the industrial sector, while the added value of energy-intensive industries accounted for only approximately 30% of the industrial added value in 2010. Nevertheless, the rapid industrialization and rising living standards owe much to the development of energy-intensive industries (Bai et al., 2019; Shen et al., 2022), and it is an indispensable part of the economy. Therefore, one of the main targets of the LCCP policy should be to promote the high-quality development of energy-intensive industries.

   With the promotion of low-carbon city initiative, some researches have examined the economic and social performance of the LCCP policy. This policy has statistically and economically improved urban carbon emission efficiency to a great extent (Yu and Zhang, 2021), and the LCCP policy has been proven to contribute to urban green growth (Cheng et al., 2019; Qiu et al., 2021). In terms of the influencing mechanism, the LCCP policy improves the urban eco-efficiency mainly through technological innovation rather than the improvement of industrial structure or energy efficiency (Song et al., 2020). However, some studies have found that the pilot policy inhibits the development of high-carbon industries (Zheng et al., 2021). Although existing studies demonstrate that the LCCP policy improves the performance of enterprises and promotes their technology innovation and optimization of resource allocation (Chen et al., 2021), few studies have focused on its impact on the energy-intensive enterprises.

   Environmental regulatory policies in China always restrict the expansion of the production scale or promote cross-industry transformation of high-polluting or high-energy-consuming enterprises. Therefore, enterprises may shift highly polluting production chains to other regions or foreign countries with weaker environmental regulations, which is detrimental to the overall environmental efficiency or global carbon reduction (Shen et al., 2019; Duan et al., 2021). In fact, environmental regulations such as fees or taxes on pollution and public participation have had a significant effect on the relocation of pollution-intensive production capacity in China (Zheng and Shi, 2017; Wang et al., 2019). To sum up, although the LCCP policy has been verified to promote green and high-quality development in some pilot cities or regions, paying attention to the transformation and upgrading of the energy-intensive enterprises is necessary to avoid pollution transfer which is contrary to the objectives of the LCCP policy.

   Some studies have judged that the growth of energy-intensive industries in China is mainly driven by the excessive factor input rather than the increase in total factor productivity (TFP), leading to a higher risk of low-carbon transition (Guo et al., 2018; Liu and Lee, 2021). Industrial lower-carbon transformation also creates regulatory and market risks for high energy-consumption enterprises (Lee and Wang, 2021; Trinks et al., 2021). This study regards the improvement of TFP as the indicator of transformation and upgrading. Using the micro data of A-share listed enterprises in China and the method of difference-in-difference (DID) design, this study aims to investigate the productivity effect of the LCCP policy on energy-intensive enterprises and discuss the possible influencing mechanism and heterogeneity. Empirical evidence suggests that the LCCP is an effective comprehensive policy to promote the high-quality development and reduce the risk of low-carbon transition for energy-intensive industries.

   The study mainly extends the existing studies in the following aspects. First, consistent with similar studies, this study adopts the DID design to improve the robustness of the research results. Second, this study focuses on the energy-intensive industries that have huge potential to reduce carbon emissions, but are also the most at risk in the transition to a low-carbon economy. Only increasing the low-carbon technology and productivity in these industries rather than moving them elsewhere is consistent with the original purpose of the carbon policy. The findings of this study provide stronger evidence of the effectiveness of the LCCP policy. Third, this study discusses in detail the role of financing and investment in the low-carbon transformation of energy-intensive industries; these findings have important implications for the development of climate finance in response to the low-carbon economic transition. Fourth, this study holds that local governments own the information advantage when designing measures to deal with carbon risks. It has important implications for optimizing the design and assessment of environmental policies, and the regional differences in resource endowment and industrial development should be considered.

   The structure of this article is arranged as follows. Section 2 displays the background of the LCCP policy in China and discusses the theoretical mechanism of its impact on energy-intensive enterprises. Section 3 introduces the method of difference-in-difference (DID) design and the data used in this study. Section 4 discusses the empirical results of benchmark regression and its robustness test. Section 5 provides further analysis and discussion. The final section presents the conclusions.

2. BACKGROUND AND THEORY

   2.1 The background of low-carbon city pilot in China

   China has pledged to reduce the intensity of carbon emissions by 40%-50% by 2020 relative to the 2005 baseline level at the United Nations Climate Change Conference in Copenhagen. According to Strengthening Action to Address Climate Change--China's Intended Nationally Determined Contributions issued on the United Nations Framework of Climate Change, China set another goal for reducing the intensity of C[O.sub.2] emissions by 60%-65% from 2005 levels by 2030. To achieve the aforementioned goals, the National Development and Reform Commission (NDRC) of China has launched three batches of low-carbon pilot provinces and cities since 2010.

   The NDRC first decided to conduct the pilot work in 5 provinces and 8 cities in July 2010. The pilot areas were asked to clearly define their own action goals, main tasks, and specific measures to control the emissions of greenhouse gas (GHG). In particular, the central government encouraged the use of market mechanisms to promote the implementation of GHG emission targets. In November 2012, the NDRC established other 28 cities and 1 province as the second batch of pilot cities for low-carbon development. Pilot areas were required to develop an allocation plan for GHG emission quota, and establish a local carbon emission trading supervision system and registration system...