Does an Emissions Trading Policy Improve Environmental Efficiency? Evidence from China

Abstract

An emissions trading system is a market instrument for pollution control that has been used in China for many years. The Ministry of Environmental Protection of China has approved the implementation of emissions trading pilot projects in 11 provinces since 2007, yet the effectiveness of the policy has not been comprehensively estimated. With panel data from 29 provinces and cities in China between 2003 and 2012, this study uses the data envelopment model-slack based measurement (DEA-SBM) method to measure environmental efficiency indicators and a difference in difference (DID) model to examine the impact of the emissions trading system on environmental efficiency. The results indicate that the policy has significantly improved environmental efficiency in the pilot provinces. However, the effects are heterogeneous with different efficiency levels across the diverse regions. Higher impacts were found in the central and western regions. Some suggestions for the optimization of the emissions trading system are suggested in this study.