Emissions Trading Systems, Structure Adjustment and Air Pollution Reduction: Evidence from Enterprises in China

Abstract

Using a Chinese-city-piloted emissions trading system (ETS)’s survey data, this study provides nationwide causal estimates of the reduction effects of the implementation of an ETS on air pollution (AP) at the enterprise level. We employ a multiperiod difference-in-differences model to control for potential endogenous problems. The results indicate that the implementation of an ETS significantly reduces the AP of enterprises in pilot areas by 6.96%, and that the effect has a dynamic effect. Heterogeneity analyses show that the emissions reduction effect of an ETS will differ for various enterprises. In terms of region, the implementation of an ETS significantly reduces the AP of eastern, central, and western enterprises by 11.46%, 5.31%, and 12.37%, respectively; in terms of scale, small- and medium-sized enterprises benefit the most (7.69%), followed by large enterprises (1.73%); and in terms of ownership, private enterprises achieve a 7.27% reduction in AP. Additionally, we find that the AP reduction effect is realized by the adjustment of enterprises’ energy and production structures rather than by adding air sewage equipment. Overall, since China is the largest AP emitter worldwide, this study will not only have important implications for sustainable development in China but also the world, providing a scientific basis for starting pilot policies in other developing countries.