The effectiveness of China's regional carbon market pilots in reducing firm emissions.
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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.
Published Version (Please cite this version)
Cui, Jingbo, Chunhua Wang, Junjie Zhang and Yang Zheng (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). pp. e2109912118–e2109912118. 10.1073/pnas.2109912118 Retrieved from https://hdl.handle.net/10161/24198.
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Bio: Dr. Jingbo Cui is an Associate Professor of Applied Economics at the Division of Social Sciences and Environmental Research Center at Duke Kunshan University. Before the current position, he was a Chu-Tian Junior Scholar from the Department of Education in Hubei Province, an associate professor at the School of Economics and Management at Wuhan University, a post-doctoral research associate, and visiting scholar at Iowa State University. He holds a Ph.D. in economics from Iowa State University, an M.S. in economics from Wuhan University, and a B.S. in economics and mathematics from Huazhong University of Science and Technology, China. Dr. Cui’s research centers on Environmental Economics, Economics of Innovation, and International Trade. His research has appeared in top academic journals in the fields of Environmental and Resource Economics and Energy Economics, such as Proceedings of the National Academy of Sciences (PNAS), American Economic Review Papers and Proceedings, Journal of Environmental Economics and Management, American Journal of Agricultural Economics, Environmental and Resource Economics, Journal of Regional Science, China Economic Review, The World Economy, Energy Economics, and Energy Policy. He has been serving as the referee for leading journals in Environmental Economics, Agricultural Economics, and Economics of Innovation (i.e., JEEM, AJAE, JAERE, Nature Climate Change, and Research Policy). His research projects have been funded by the National Natural Science Foundation of China (General Program, Junior Program, and Urgent Program), Jiangsu Qinglan Project, and Kunshan Municipal Fund.
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