Dynamics of Production‐ and Consumption‐Based Carbon Dioxide Emissions in China: The Influential Role of Energy Imports and Monetary Policy

ABSTRACT As the world's largest CO 2 emitter and one of the largest energy importers, China encounters significant challenges in achieving its carbon neutrality target whilst ensuring environmental sustainability. Understanding how macroeconomic and energy‐related factors influence different dimensions of carbon emissions is therefore essential for designing effective climate policies. This study examines the effects of monetary policy and energy imports on aggregate carbon emissions, consumption‐based carbon emissions (COC) and production‐based carbon emissions (COP) in China over the period 1990–2020. The study employs the novel augmented autoregressive distributed lag (AARDL) approach to examine short run and long run relationship amongst variables. The empirical evidence demonstrates that monetary policy (i.e., real interest rate) has a positive relationship with aggregate CO 2 emissions and COC in the long run, whilst the relationship between monetary policy and COP is negative but statistically insignificant. Energy imports have a positive and significant impact on aggregate CO 2 emissions, COC and COP, in both the short and long run. Economic growth also contributes positively to all three emissions accounts, reflecting the environmental impact of China's energy‐intensive growth model. Therefore, the findings suggest that the integration of environmental goals into monetary policy, the promotion of green finance and the acceleration of the transition to renewable energy sources will be necessary to reduce CO 2 emissions and meet China's long‐term carbon neutrality.