Do Firms That Are Disadvantaged by Unilateral Climate Policy Receive Compensation? Evidence from China’s Energy-Saving Quota Policy

Round 1

Reviewer 1 Report

The paper is not formatted according to the Editorial Requirements.

The Literature Review is ok, however it is rather a survey than systematic review.

Authors wrote:

„…, for a given set of observable characteristics X of regulated and unregulated firms in 2010 () Pr(1| ) PX D X = =” so the question is

What are the characteristics?

 

Authors formulated 2 Hypotheses:

H1: The ESQP-regulated firms receive compensation.

H2: Among the regulated firms, the firms with a higher energy-saving burden or more active implementation of energy conservation activities receive more compensation than the firms with a lower burden or less active implementation

Authors should answer if they are accepted/rejected.

What are the consequences for management of companies, for economics and for society ?

Who is beneficiary of  your research?

Although authors present this situation for China, the patterns of behaviour are also in other countries what makes this research original

 

 

Author Response

Respected reviewer:

 Thanks for making time to read my manuscript, and putting forward a lot of valuable comments. We have carried out a careful revision for the manuscript, mainly including the following contents:

 

1. During revision, you are highly advised to strengthen the link between your paper and the special issue "Towards the Sustainable Development Goals: Monitoring, Assessment and Management of Eco-Environmental Space".

Thank you for reminding me!  

Some expressions have been added in the Section of “Abstract”, “1. introduction”, and “5.2.Practical Inspiration”, respectively. We hope to get your approval.

“1.Introduction

Global warming caused by CO₂ emissions has resulted in drought, flooding and other dreadful consequences, which endangers the sustainable development for humans and the eco-environment. Minimizing energy consumption can reduce CO₂ emissions and support the mitigation of global warming and achievement of sustainable development goals. Many countries have been trying to reduce carbon dioxide emissions through energy conservation policies, such as carbon taxex in Denmark and most other European countries, China’s energy-saving and low-carbon action of 16078 firms (or institutions).”

“5.2.Practical Inspiration

This research conclusion provides practical guidance for firms to reduce energy consumption and CO₂ emission in a sustainable manner, and is of great practical significance to policy makers improving compensation policies beneficial to the mitigation of global warming and the sustainable development of the eco-environment.

”

 

2. The paper is not formatted according to the Editorial Requirements.

Thanks. We have made the modifications based on the formatted document that is provided by the editor.

 

3. The Literature Review is ok, however it is rather a survey than systematic review.

Thanks. We have added some content of “review” in the Section “2. Literature review”, and hope to get your approval.

 

4. Authors wrote:Essentially, the propensity score, denoted by P_i, is the estimated probability of being regulated by the ESQP,, for a given set of observable characteristics X of regulated and unregulated firms in 2010。 So the question is what are the “characteristics?” 

Sorry. These characteristis are the matching variables in Table 1, such as lnoutput, lnassets, subsidy2008, tax rate2008-10, and state ownership (see Table 1 for detailed definitions).

 

5. Authors formulated 2 Hypotheses. H1: The ESQP-regulated firms receive compensation.H2: Among the regulated firms, the firms with a higher energy-saving burden or more active implementation of energy conservation activities receive more compensation than the firms with a lower burden or less active implementation. Authors should answer if they are accepted/rejected.

At the end of the first paragraph of Section 4.2 and the second paragraph of Section 4.3, corresponding explanations are supplemented. That is, “Therefore, hypothesis H1 is accepted” in Section 4.2.

 

6. What are the consequences for management of companies, for economics and for society?Who is beneficiary of  your research?

According to your valuable comments, we have added Section 5.2 for special explanation to both supply the discussion that you have reminded and highlight our existing discussion. 

Some expressions have also been added to strengthen the link between your paper and the special issue “Towards the Sustainable Development Goals: Monitoring, Assessment and Management of Eco-Environmental Space”.

 

7. Although authors present this situation for China, the patterns of behaviour are also in other countries,what makes this research original.

We checked the literature based on the background of China and other countries or regions (e.g. USA, EU, France, Germany). Except that the compensation mechanism of free over-allocation for firms involved by an ETS has been confirmed, there is almost no empirical literature to verify whether the regulated firms are compensated. For that, we think our reseach provides additional insights into the inequity issue of climate policy. We hope to get your approval.

 

Reviewer 2 Report

The paper is well-done from a positive perspective. It gives empirical evidence on the compensation paid to Chinese firms to offset the regulatory burdens of energy and environmental policy. The paper frames this compensation in terms of compensation for inequities, but it is unclear that there are inequities, or that the compensation policies are more inequitable than the regulatory burdens.

The regulatory burdens are justified based on the argument that the firms' activities harm the environment. A standard treatment of policies to mitigate externalities, going back at least to Pigou, is to place a corrective tax on the externality-generating firms. The firms are imposing costs on others, and they should bear this cost, just as they bear the cost of the land, labor, and capital they use in production. This line of reasoning suggests that the firms themselves should bear the regulatory burden, and that it is inequitable to pass the cost on to others.

This raises the question of who pays the cost of the subsidies to the externality-generating firms. Subsidies and tax breaks impose a cost on everyone else, and the paper never considers whether it is equitable to ask those who have nothing to do with the firms' activities to pay to compensate those firms for the claimed inequities.

And, as noted earlier, it is not inequitable to place a larger burden on those firms that generate the largest external cost.

As a positive exercise, the paper does a good job of showing how compensation is distributed to offset regulatory burdens. As a normative exercise, the paper never shows that it is inequitable to place larger burdens on firms that generate more externalities, or why it is equitable to ask those Chinese citizens who have nothing to do with those firms to pay them compensation.

The only argument along these lines that makes some sense is that the regulations apply to Chinese firms only, so the costs of the regulations make those firms less competitive on international markets. But this argument falls short, because other nations have environmental regulations that are at least as stringent as those in China.

The paper shows who gets the compensation, but it does not show that there are inequities in the regulations, or that compensation is equitable. Why should firms receive compensation for regulations that require them to reduce the harm they impose on others?

Author Response

Respected reviewer：

 Thanks for making time to read my manuscript, and putting forward a lot of valuable comments. We have carried out a careful revision for the manuscript, mainly including the following contents:

 

1.The paper frames this compensation in terms of compensation for inequities, but it is unclear that there are inequities.

Thanks. In Section “3.2. Four inequities induced by the ESQP”, we have supplemented a explanation of why the inequities will stem from the ESQP. Such as “Enterprises mainly complete energy-saving task or environmental responsibility by purchasing or improving environmental protection equipment and production equipment, and improving production processes, and optimizing product design. Firms interviewed by us frequently complaint the negative impacts of these environmental costs on the profitability and market competition. Moreover, the higher intensity of energy-saving tasks of regulated firms, the more capital investment they need, and then more disadvantaged they are in the market competition.”.

We hope to get your approval.

 

2.As a normative exercise, the paper never shows that it is inequitable to place larger burdens on firms that generate more externalities.

I quite agree with you. Firms’ carbon emissions have negative externalities and should be subject to Pigou tax to internalize external costs, and then urge them to save energy and reduce emissions.

On the contrary, firms’ efforts on reducing energy consumption and CO₂ emission have positive externalities. Compensations that offset firms’ additional environmental costs can promote firms to increase investment in energy conservation, thus better avoiding free riding problems. (We have added these two sentences in Section “3.3. Compensatory policies and their measurements”)

To sum up, we believe that it is not in conflict. I wonder if you agree with this view.

 

3.The compensation policies are more inequitable than the regulatory burdens.

This concern is very necessary. It is an another big topic that is worthy of our further study .

According to our results that the regulated firms and the more heavily burdened regulated firms can get more compensations, can we think that the compensation measures really benefit regulated firms? That is, the compensation policies are relatively equitable. We hope to get your approval.

 

4.Subsidies and tax breaks impose a cost on everyone else, and the paper never considers whether it is equitable to ask those who have nothing to do with the firms’ activities to pay to compensate those firms for the claimed inequities.

As stated in the paper, policy makers worry that energy-intensive and trade-exposed (EITE) firms may lose competitiveness in world markets due to policies inducing higher costs compared to their international rivals from countries with less stringent climate policies, which may cause firms move abroad and result in the loss of GDP, taxes, employment, and welfare. So, it seems that the governments in various countries have not considered the taxpayer’s contribution, a large number of important climate policies have compensation mechanisms in place.

 

5.The only argument along these lines that makes some sense is that the regulations apply to Chinese firms only, so the costs of the regulations make those firms less competitive on international markets. But this argument falls short, because other nations have environmental regulations that are at least as stringent as those in China. 

We fully agree with you.

Our starting point is that environmental regulations in China and other countries is unilateral or sub-global, and we only explore whether the regulated firms can obtain compensations based on China’s realities.

 

Author Response File: Author Response.pdf