Does carbon ETS affect the distribution of labor's slice of the factor income pie? From the low carbon transition perspective

Fan Yu, Shilin Zheng, Shuhong Zheng, Chenhao Guo

Research output: Contribution to journalArticlepeer-review

Abstract

The carbon emission trading scheme (hereafter ETS) impacts firms' production decisions and promotes them to achieve low-carbon transition. This transition entails the movement of both labor and capital factors and consequently triggers re-distribution of factor income. To analyze the impacts of the carbon ETS on factor income distribution, we first theoretically incorporate carbon emission permit as a new factor into the general equilibrium model, shedding light on the potential mechanism. Utilizing city-level panel data from 2003 to 2019 and employing a staggered difference-in-differences (DID) model, we find that the carbon ETS is inclined to benefit labor at the expense of capital, exhibiting a progressively strengthening dynamic effect. Furthermore, we verify the intra-industry and inter-industry low carbon transition are valid mechanisms. Overall, these findings imply that implementing carbon ETS contributes to increasing the labor share of factor income. This study suggests that market-based climate policies have the potential to mitigate excessive reliance on capital and fossil fuels through low-carbon transition. Furthermore, it offers insights into mitigating the declining trend of labor income share.

Original languageEnglish
Article number107569
Number of pages15
JournalEnergy Economics
Volume134
Early online date30 Apr 2024
DOIs
Publication statusPublished - Jun 2024

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