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

Cui, Jingbo, Wang, Chunhua, Zhang, Junjie and Zheng, Yang (2021) The effectiveness of China’s regional carbon market pilots in reducing firm emissions. Proceedings of the National Academy of Sciences of the United States of America, 118 (52). ISSN 0027-8424

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Identification Number: 10.1073/pnas.2109912118

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.

Item Type: Article
Official URL: https://www.pnas.org/
Additional Information: © 2021 The Authors
Divisions: Grantham Research Institute
Geography & Environment
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HD Industries. Land use. Labor
Date Deposited: 20 Jan 2022 17:12
Last Modified: 25 Jan 2022 09:18
URI: http://eprints.lse.ac.uk/id/eprint/113492

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