Do carbon ETS pilots improve cities' green total factor productivity? Evidence from a quasi-natural experiment in China

Abstract

Improving green total factor productivity (GTFP) is required for China's economic catch-up towards the global frontier. As a vital market-driven environmental regulation instrument, China's carbon emissions trading scheme (ETS) plays a great role in achieving this task. In this paper, we constructed a Difference-in-Difference (DID) model to examine the impact of China's ETS pilot policy on city-level GTFP. The results show that the GTFP in ETS pilot cities is increased by 11.4% on average compared with non-pilot cities. However, the positive impact exists only in a short term and lasts five years since policy implementation. Heterogeneity analysis shows that, compared with non-industry-dominated cities, the GTFP in industry-dominated cities has been greatly promoted due to the ETS pilots. In addition, China's ETS pilots produce significant spatial spillover effects on neighboring non-pilot cities. Finally, several recommendations concerning China's ETS policy and GTFP improvement are put forward.