Effect of the Emissions Trading Scheme on CO2 Abatement in China

Abstract

This article takes advantage of the pilot Emissions Trading Scheme (ETS) project to estimate the causal impact of the ETS on CO2 abatement in China. The CO2 emissions and CO2 intensities of each province are calculated by using the fossil fuel data of 30 provincial administration regions from 2006 to 2016. Then difference in difference (DiD) models and propensity score matching (PSM) with panel data are applied to estimate the causal impact of the pilot ETS project. Results show that the pilot regions reduce their CO2 emissions and intensities more than the non-pilot regions under the pilot ETS project. The pilot ETS project significantly induced 12% decreases in the nominal CO2 intensity and 7.6% decrease in the real CO2 intensity, after controlling for regional heterogeneity, but its reduction effects on CO2 emissions are insignificant. Decreasing the proportion of coal to total energy consumption may be the main channel of the pilot ETS project inducing CO2 abatement. The estimated results for control variables indicate that upgrading industrial structures, attracting FDI, and purifying the export structure have significant effects on CO2 abatement.