The impact of foreign direct investment on China's carbon emissions through energy intensity and emissions trading system

The foreign direct investment (FDI) is a crucial channel for acquiring advanced green technology and achieving economic growth. However, the underlying mechanism and evidence of FDI impacts on carbon emissions have not been systematically explored. This study innovatively examines the mechanism of FDI on carbon emissions through energy intensity and the moderating effects of emissions trading system (EST) in the above process by constructing a dynamic spatial econometric model following the STIRPAT framework and the EKC hypothesis using the panel data of 30 provinces in mainland China from 2004 to 2016. It concludes that FDI is one reason that compels the increase in emissions in China's present stage. However, there exists a nonlinear relationship of the inverted-U shape between FDI and emissions, that is, as the ratio of FDI to GDP rises, the promotion effect of FDI on emissions will increase first and then decrease. Besides, FDI can also indirectly increase carbon emissions by promoting energy intensity. We further found that the ETS has a significant negative impact on carbon emissions, i.e., emissions in ETS pilot areas are less than those in non-pilot ones. Moreover, the ETS can reduce the increase of carbon emissions caused by FDI but cannot significantly influence the process that FDI affects emissions through energy intensity. Policy implications for China also are discussed, which can provide a guide for other developing countries. (c) 2021 Elsevier B.V. All rights reserved.

Automated summary

The study found that foreign direct investment has a certain promoting effect on carbon emissions in China, but there is also a diminishing effect; emissions trading system has a significant negative impact on carbon emissions, reducing the increase caused by FDI; however, the ETS cannot significantly influence the process where FDI affects emissions through energy intensity.