The impact of low-carbon policy on green manufacturing development

In September 2020, China announced its intentions to reach peak carbon emissions by 2030 and achieve carbon neutrality by 2060 (known as the '30-60' greenhouse gas reduction goals). With a focus on China's pilot low-carbon city initiative, this paper adopts the difference-in-differences approach to examine the effect of low-carbon policies on the green development of China's manufacturing industry. The findings show that the implementation of low-carbon policies could significantly reduce pollutants and improve productivity. The results hold after a battery of robustness tests. Further analysis shows that the effect of low-carbon policies on the emissions reduction of larger taxpayers is more pronounced, suggesting that including low-carbon policies as a part of the government's performance assessment weakens the opportunistic behaviour of local governments in pursuing economic growth at the expense of the environment. It also finds that manufacturing firms typically do not respond to the policy in a negative way (by limiting or reducing production) but instead achieve positive emissions reduction by increasing resource recycling. The findings of this paper provide empirical evidence and policy implications to support the government expanding its low-carbon policies to a national level to mitigate climate change and achieve green manufacturing development.