Abstract
Preliminary explorations have been conducted on the SO2 emission trading system (ETS) in China, but existing studies have paid little attention to the system's emission reduction effect and the effect mechanism. Based on panel data of Chinese cities, this paper empirically examines the influence and mechanism of the SO2 ETS on urban SO2 emission. In addition, considering the role of government in local environmental governance, this paper also examines synergies between government environmental regulations and the SO2 ETS. The SO2 ETS significantly suppresses urban SO2 emission, but under more extreme levels of urban SO2 pollution, this emission reduction effect gradually weakens until it is no longer significant. The implementation of more stringent environmental regulations by local governments strengthens the emission reduction effect. The analysis of intermediary effects shows that the SO2 ETS promotes the reduction of urban SO2 emission by stimulating green technological innovation, promoting industrial structure adjustment, and channeling investment towards green assets, with the latter intermediary effect being stronger than the former two. This paper affirms the important role of ETSs in the development of the green economy and provides an empirical basis for countries to introduce market mechanisms to solve environmental challenges and leverage the role of government environmental regulation.
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