How does production substitution affect China's embodied carbon emissions in exports?

As it is the world's top exporter of goods and a carbon emitter, a reduction in China's embodied carbon emissions in exports (ECEE) can help reduce its total carbon emissions. In the post-2008 financial crisis era, the adjustment of the industrial structure has emerged as a powerful tool for reducing carbon emissions. However, it is unclear whether changes in China's production structure have reduced its ECEE and how production substitution affects this reduction. This paper proposes an approach based on a three-tier structural decomposition analysis (SDA) to evaluate the effects of production substitution on China's ECEE from 1997 to 2017. The results indicate that production substitution led to a reduction in China's ECEE whereas changes in production levels increased them. Furthermore, from 1997 to 2017, intra-group production substitution increased China's ECEE while inter-group production substitution reduced it. In the context of inter-group production substitution, the substitution of energy-intensive production with non-energy-intensive production is key to reducing China's ECEE. These findings provide a deeper understanding for how changes in the industrial structure and production substitution affect China's ECEE.