Does Emission Trading Boost Carbon Productivity? Evidence from China’s Pilot Emission Trading Scheme

Abstract

As the country with the largest carbon emissions globally, the effective operation of China’s carbon emissions trading scheme (ETS) is of great importance to the global community in terms of mitigating climate change. This paper considers China’s pilot ETS launched in 2013 as a quasi-natural experiment. Exploring provincial industrial-level data that are more in line with the ETS coverage, the difference-in-difference-in-difference (DDD) model is used to evaluate the impact of the ETS on carbon productivity. Considering different pilot regions and industries, we also analyze the heterogeneous effect of ETS. Moreover, the mediating effects of technical progress and capital investment are explored. We find that China’s pilot ETS boosted carbon productivity. Among pilot regions, the best policy effectiveness appeared in Beijing, while the weakest effectiveness appeared in Chongqing. Among the pilot industries, the pilot ETS had better effectiveness in petrochemical and electric power industries and weaker effectiveness in building materials and transportation industries. Additionally, the pilot ETS promoted carbon productivity through both technological progress and capital investment, and the former contributed more. Our findings can provide empirical references and policy implications for nationwide implementation of ETS to further promote low-carbon economic transformation.