The effectiveness of China’s regional carbon market pilots in reducing firm emissions

Abstract

China has implemented an emission trading system (ETS) to reduce its ever-increasing greenhouse gas emissions while maintaining rapid economic growth. With low carbon prices and infrequent allowance trading, whether China’s ETS is an effective approach for climate mitigation has entered the center of the policy and research debate. Utilizing China’s regional ETS pilots as a quasi-natural experiment, we provide a comprehensive assessment of the effects of ETS on firm carbon emissions and economic outcomes by means of a matched difference-in-differences (DID) approach. The empirical analysis is based on a unique panel dataset of firm tax records in the manufacturing and public utility sectors during 2009 to 2015. We show unambiguous evidence that the regional ETS pilots are effective in reducing firm emissions, leading to a 16.7% reduction in total emissions and a 9.7% reduction in emission intensity. Regulated firms achieve emission abatement through conserving energy consumption and switching to low-carbon fuels. The economic consequences of the ETS are mixed. On one hand, the ETS has a negative impact on employment and capital input; on the other hand, the ETS incentivizes regulated firms to improve productivity. In the aggregate, the ETS does not exhibit statistically significant effects on output and export. We also find that the ETS displays notable heterogeneity across pilots. Mass-based allowance allocation rules, higher carbon prices, and active allowance trading contribute to more pronounced effects in emission abatement.

The Effect of Carbon Emission Taxes on Environmental and Economic Systems

“…Some reports point out that if the temperature on our planet continues to increase at the current rate, the global average sea level is expected to rise from 1 to 3 feet (1 m) by 2100 [ 6 ]. In an effort to solve these problems caused by climate change and global warming, policymakers all over the world are turning to tax-based policies of reducing carbon emissions [ 7 , 8 , 9 , 10 ].…”

Assessing the effectiveness of innovative city pilots in improving urban carbon emission performance: A spatial difference-in-difference approach

“…To exclude the interference of other contemporaneous policies on the analysis results of this paper, this paper further controls for low carbon city pilot (LCCP) and carbon emission trading pilot (CETP) policy shocks in the model (Chen et al, 2021;Cui et al, 2021). After adding the above two policy shocks, the results of the impact of ICP on urban carbon emission performance are shown in Table 10.…”

Emission Trading System, Carbon Market Efficiency, and Corporate Innovations

“…Hence, China is facing the dual challenge of effectively controlling carbon emissions while maintaining economic growth. As the largest developing country, China attempts to achieve cost-effective emission mitigation through carbon emissions trading (ETS), guiding enterprises to transform technological innovation, the progressive innovation investments can contribute to the excess economic returns of an enterprise (Ionescu, 2021) [ 6 ], and achieve high-quality economic development (Cui et al, 2021) [ 7 ], which can shed light on other emerging economies like Africa that are developing national innovation strategies and are assuming a steady increase R&D expenditures to achieve the global goals of green development (Dobrzanski et al, 2021) [ 8 ].…”

“…Thus, in the long run, R&D investment can more effectively solve the environmental pollution problems of enterprises and achieve a win–win situation for both economy and the environment (Mitchell and Connor, 2004) [ 11 ]. Extensive studies have explored the ability of pilot ETS in China to significantly reduce regional CO 2 emission intensity (Zhou, 2019; Xuan, 2020) [ 12 , 13 ], and have also confirmed the positive correlation between pilot ETS and enterprise technological innovation (Cui et al, 2021; Zhu et al, 2019) [ 7 , 14 ]. However, the carbon market efficiency of China’s pilot ETS is low and varies greatly across regions (Zhao et al, 2016) [ 15 ], which may greatly constrain the design and innovation effects of a national unified ETS.…”