How does China's energy-consumption trading policy affect the carbon abatement costs? An analysis based on spatial difference-in-differences method

Abstract

To attain China's target of carbon neutrality by 2060, the implementation of the Energy Consumption Trading (ECT) system serves as an effective approach to improve energy efficiency and mitigate CO2 emissions. Nevertheless, it is crucial to consider not only the importance of carbon reduction effect caused by ECT system but also the associated cost. Therefore, this paper applies the spatial difference-in-differences (SDID) model to assess the direct and spillover impacts of the ECT policy on the carbon abatement cost, which is measured by shadow price of CO2 emissions and calculated using SBM-DEA model. Panel data encompassing 279 Chinese cities from 2010 to 2019 are employed for analysis, with additional insights provided through heterogeneity and mechanism analyses. The results show that ECT policy increases the local carbon abatement cost in pilot cities but decreases the cost of surrounding cities. Meanwhile, such a declination effect in neighboring cities with a spatial attenuation boundary of 1000 km. The heterogeneity analysis suggests that the implementation of ECT policy leads to an increase in the carbon abatement cost in cities located in non-Eastern Coastal regions, cities with abundant natural resources and cities with small populations. The mechanism analysis indicates that the ECT policy implementation facilitates the improvement of green technology in the neighboring cities of the pilot project, consequently lowering the carbon abatement cost. Besides, this policy also results in a decrease in the carbon intensity of the pilot cities. Owing to the U-shaped association between carbon intensity and the carbon abatement cost, the policy implementation stimulates an increase in the cost within the pilot cities.