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

Author

Listed:
  • Cui, Jingbo
  • Wang, Chunhua
  • Zhang, Junjie
  • Zheng, Yang

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.

Suggested Citation

  • Cui, Jingbo & Wang, Chunhua & Zhang, Junjie & Zheng, Yang, 2021. "The effectiveness of China’s regional carbon market pilots in reducing firm emissions," LSE Research Online Documents on Economics 113492, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:113492
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    Cited by:

    1. Zhao, Yu & Zhong, Honglin & Kong, Fanbin & Zhang, Ning, 2023. "Can China achieve carbon neutrality without power shortage? A substitutability perspective," Renewable and Sustainable Energy Reviews, Elsevier, vol. 182(C).
    2. Wu, Qingyang & Tan, Chang & Wang, Daoping & Wu, Yongtao & Meng, Jing & Zheng, Heran, 2023. "How carbon emission prices accelerate net zero: Evidence from China's coal-fired power plants," Energy Policy, Elsevier, vol. 177(C).
    3. He, Ling-Yun & Chen, Kun-Xian, 2023. "Does China's regional emission trading scheme lead to carbon leakage? Evidence from conglomerates," Energy Policy, Elsevier, vol. 175(C).
    4. Yu, Jian & Liu, Peng & Shi, Xunpeng & Ai, Xianneng, 2023. "China’s emissions trading scheme, firms’ R&D investment and emissions reduction," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1021-1037.
    5. Mao, Jie & Wang, Chunhua & Yin, Haitao, 2023. "Corporate responses to air quality regulation: Evidence from a regional environmental policy in China," Regional Science and Urban Economics, Elsevier, vol. 98(C).
    6. Hu, Yucai & Li, Ranran & Du, Lei & Ren, Shenggang & Chevallier, Julien, 2022. "Could SO2 and CO2 emissions trading schemes achieve co-benefits of emissions reduction?," Energy Policy, Elsevier, vol. 170(C).
    7. Ren, Shenggang & Wu, Yanping & Zhao, Li & Du, Lei, 2024. "Third-party environmental information disclosure and firms' carbon emissions," Energy Economics, Elsevier, vol. 131(C).
    8. Zhou, Tao & Huang, Xuhui & Zhang, Ning, 2023. "The effect of innovation pilot on carbon total factor productivity: Quasi-experimental evidence from China," Energy Economics, Elsevier, vol. 125(C).
    9. Niu, Xiaoyan & Zhang, Yuwen & Li, Baoqi & Chen, Zhenling & Ni, Guohua & Lyu, Ning, 2024. "How does carbon emission trading scheme affect enterprise market value? A roadmap towards natural resources sustainability," Resources Policy, Elsevier, vol. 88(C).
    10. Wan, Panbing & Zhang, ZhongXiang & Chen, Lin, 2024. "Environmental co-benefits of climate mitigation: Evidence from clean development mechanism projects in China," China Economic Review, Elsevier, vol. 85(C).
    11. Yu, Jian & Liu, Peng & Fu, Dahai & Shi, Xunpeng, 2023. "How do power shortages affect CO2 emission intensity? Firm-level evidence from China," Energy, Elsevier, vol. 282(C).
    12. Wang, Xinru & Long, Ruyin & Sun, Qingqing & Chen, Hong & Jiang, Shiyan & Wang, Yujie & Li, Qianwen & Yang, Shuhan, 2024. "Spatial spillover effects and driving mechanisms of carbon emission reduction in new energy demonstration cities," Applied Energy, Elsevier, vol. 357(C).
    13. Tan, Xiujie & Wang, Banban & Wei, Jie & Taghizadeh-Hesary, Farhad, 2023. "The role of carbon pricing in achieving energy transition in the Post-COP26 era: Evidence from China's industrial energy conservation," Renewable and Sustainable Energy Reviews, Elsevier, vol. 182(C).
    14. Weng, Zhixiong & Liu, Tingting & Wu, Yufeng & Cheng, Cuiyun, 2022. "Air quality improvement effect and future contributions of carbon trading pilot programs in China," Energy Policy, Elsevier, vol. 170(C).
    15. Li, Changsheng & Qi, Yaping & Liu, Shaohui & Wang, Xu, 2022. "Do carbon ETS pilots improve cities' green total factor productivity? Evidence from a quasi-natural experiment in China," Energy Economics, Elsevier, vol. 108(C).
    16. Yanying Wang & Qingyang Wu, 2024. "Robots, firm relocation, and air pollution: unveiling the unintended spatial spillover effects of emerging technology," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-17, December.
    17. Hao, Xinyu & Sun, Wen & Zhang, Xiaoling, 2023. "How does a scarcer allowance remake the carbon market? An evolutionary game analysis from the perspective of stakeholders," Energy, Elsevier, vol. 280(C).

    More about this item

    Keywords

    climate change; emission trading system; firm emissions;
    All these keywords.

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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