How does emission trading reduce China's carbon intensity? An exploration using a decomposition and difference-in-differences approach

Abstract

Emission trading is a market-driven method to more quickly reduce carbon intensity, and has been widely used in countries with significant carbon emissions. In 2013, the Chinese government established pilot carbon emission trading programs in seven provinces. However, there is incomplete research on the effect and influencing channels of emission trading on carbon intensity reduction. To explore these problems, this study conducted an empirical analysis, using a decomposition and difference-in-differences approach. The main conclusions are as follows: (1) Overall, China's emission trading pilots have driven a significant decline in the carbon intensity, resulting in an average annual decline of approximately 0.026 tons/10,000 yuan in the pilot provinces. (2) In the sample period, emission trading pilots had a sustained and stable effect on carbon intensity with no time lag. (3) Emission trading pilots reduce the carbon intensity by adjusting the industrial structure. In contrast, energy structure and energy intensity channels have not yet been realized.