Do Carbon Trading Policies Reduce Industrial Carbon Emissions? ——Evidence from China’s Pilot ETS

Abstract

Given the trend toward increased globalization of climate governance, there is an increasing focus on achieving sustainable development through economic growth and low-carbon transition for China. Given that China is the world’s biggest carbon emitter, the country must meet the challenge of addressing its international emission reduction targets while facilitating domestic industrial green transition. The industrial sector represents the major contributor of carbon emissions at the national level, implying that low-carbon transition of the industrial sector is essential for reaching dual carbon strategy objectives. The carbon emission trading scheme (ETS) represents a widely used market-based environmental regulation mechanism that has been piloted in various Chinese regions since 2013. After several years of policy experimentations, it becomes necessary to examine the actual impact of ETS policies on industrial decarbonization and their regional differentiation performance. By using balanced panel data of 30 Chinese provinces from 2010 to 2023, the present study uses the DID approach in multiple periods to estimate the impact of ETS pilot policy on the carbon emission intensity of industry. The empirical results show that ETS significantly decreases the carbon emission intensity of industry in pilot provinces, with distinct time-lag effect and accumulation effect. The policy dividend becomes gradually evident in the medium term and becomes even more powerful when market mechanism matures. Distinct heterogeneity effects are found between different regions and institutional environments. In particular, provinces located in the east and with stronger environmental governance capacity have better emission performance under ETS, whereas there is no significant effect of policy in the western region.