The effectiveness and heterogeneity of carbon emissions trading scheme in China

Some developed economies have run emission trading scheme (ETS) to mitigate carbon emissions. However, we know little about the effectiveness and heterogeneity of ETS in a context of developing economy. This paper evaluates the effectiveness and heterogeneity of China's pilot ETS, the first ETS run in a developing economy. Difference-in-difference (DID) and difference-in-difference-in-difference (DDD) methods are employed to analyze provincial industrial-level data. The heterogeneity of ETS effects is also explored from regional and industrial perspectives. The empirical results show that the pilot ETS can effectively reduce pilot industries' carbon emissions. The reduction effect of the pilot ETS has a substantial heterogeneity for different pilot provinces and industries. Carbon emissions are reduced by the pilot ETS through technological innovation and the adjustment of industrial structure. The empirical results suggest that policymakers may consider establishing a national ETS and differentiating carbon quota allowance in covered regions and industries in the current pilot ETS.

Automated summary

This paper evaluates the effectiveness and heterogeneity of China's pilot ETS, the first of its kind in a developing economy. The results show that the pilot ETS effectively reduces carbon emissions in pilot industries, with substantial heterogeneity in effects across different provinces and industries. The reduction in emissions is attributed to technological innovation and industrial restructuring. Policy implications include considering a national ETS and differentiated carbon quotas for different regions and industries.