Emission Reduction Benefits and Economic Benefits of China's Pilot Policy on Carbon Emission Trading System

Abstract

As a market means to control nongreen behaviors of firms, the most expected incentive effect of the carbon emission trading system (CETS) is to achieve the dual economic and environmental effects. As a typical developing country, whether China's CETS has a positive incentive effect is significant to controlling greenhouse gas. Based on the quasinatural experiment of China's pilot policy on CETS in 2013, this study investigates its emission reduction and economic benefits using the difference-in-difference (DID) method. Then, the realization mechanism of CETS's incentive benefits is reversely studied with the idea that goals generate behavior. The results show that the following: (a) China's CETS has produced positive incentive effects of promoting both economic and emission reduction benefits. Furthermore, the results are still valid after using the instrumental variable to overcome the endogenous problem, placebo tests to eliminate sampling bias, and a series of robustness tests. (b) Further analysis shows that firms can choose to improve technology innovation and energy efficiency to get the positive incentive effects of CETS. (c) The incentive effects of CETS also have regional heterogeneity. The emission reduction and economic benefits are greater in provinces with deficient resource endowments and strict environmental law enforcement.