Distributive effects of climate change: How does rising temperatures affect energy allocation between cities?

Abstract

The impact of rising temperatures on cities is heterogeneous, leading to a reallocation of energy between cities. However, whether this redistribution is detrimental remains unclear. Based on panel data of 261 cities in China from 2006 to 2021, this study examines how rising temperatures affect energy misallocation between cities. Research indicates that rising temperatures exacerbate energy misallocation, primarily due to their heterogeneous effects on cities with energy under-allocation and energy over-allocation. Mechanism analysis reveals that rising temperatures force the exit of firms in high-energy-intensity industries, stimulate the entry of firms in low-energy-intensity industries, and reduce the share of the secondary industry. However, these effects are only significant in cities with energy under-allocation, ultimately exacerbating energy misallocation. Further analysis indicates that the promotion incentives of city party secretaries positively moderate the impact of rising temperatures on energy misallocation, primarily driven by the setting of overly ambitious economic growth targets. This study enriches research on the distributive effects of rising temperatures, drivers of factor misallocation, and impacts of promotion incentives, thus providing references for formulating locally tailored climate adaptation policies.