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Have China's emissions trading systems reduced carbon emissions? Firm-level evidence from the power sector

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  • Wang, Baixue
  • Duan, Maosheng

Abstract

The effectiveness of China's carbon emissions trading systems (ETSs) in reducing emissions is crucial for achieving carbon neutrality and global climate targets. However, existing research presents conflicting results regarding their impact on the carbon intensity of output, likely due to data and methodological challenges. This study examines the impact of China's regional ETSs on carbon emissions and carbon intensity in the power sector, utilizing verified firm-level carbon emission data and annually updated regulatory lists of firms. The findings indicate that the ETSs significantly reduced carbon emissions primarily through reduced power generation, with little impact on carbon intensity. Nonetheless, large allowance shortages and high carbon prices contributed to the reduction of carbon intensity, while large market size, high liquidity, and stringent penalties had a limited impact on emission reductions. The study also found that firms with lower levels of technology were under more pressure, while those with advanced technology were under less pressure, suggesting that the ETSs served to “reward the good and punish the bad.” This implies that although the ETSs did not increase the efficiency of coal-fired firms, they contributed to optimizing the power generation structure by reducing the output of coal-fired firms and incentivizing the replacement of outdated capacity. Moreover, no evidence of carbon leakage to neighboring provinces or within the same ownership networks was found. These insights are valuable for designing both China's national ETS and ETSs in other countries with similar conditions.

Suggested Citation

  • Wang, Baixue & Duan, Maosheng, 2025. "Have China's emissions trading systems reduced carbon emissions? Firm-level evidence from the power sector," Applied Energy, Elsevier, vol. 378(PB).
    • Handle: RePEc:eee:appene:v:378:y:2025:i:pb:s0306261924021858
    DOI: 10.1016/j.apenergy.2024.124802
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