Carbon Pricing Induces Energy Industries Changes: DID Evidence from Chinas Carbon Market Pilots

Abstract

This paper investigated whether the China carbon emission right trading policy has effects on the energy industry including coal, electricity consumptions. Moreover, this paper fo-cused on energy industries and showed the mechanism that energy consumption is affected due to a reconstruction of energy structure. The paper employed the DID model to compare energy consumption, industries profitability and market sentiment between the ETS regions and ETS related industries. Some novel results are as follows. First, compared with the non-pilot areas. High carbon-based energy consumptions in the ETS areas are significantly re-duced. This consumption reduction has come at the cost of production firms average prof-itability and net asset to market value. This can result from expectation adjustment of the market investors for the event. Second, because the ETS policy has a gap between the offi-cial announcement and market start-up, this paper considered multiple event times and showed that ETS is a multiple-time event, applying usual DID model may lead to confound-ing results for this. Results show distinct differences on the market reactions and industries reactions for different event times.