Impact of China's carbon emissions trading scheme on firm-level pollution abatement and employment: Evidence from a national panel dataset

Abstract

As an emerging economy, China has implemented market-oriented carbon emissions trading schemes in response to growing environmental challenges. Yet, concerns persist regarding the potential hindrance of these policies on socio-economic progress due to increased costs and possible declines in employment rates. Using a novel rich panel dataset of small-medium enterprises from 2011 to 2015, this study employs time-varying difference-in-differences methods to provide robust empirical evidence on the effect of these carbon trading policies. The findings reveal that the trial programs notably decreased sulfur dioxide emissions at the firm level by 2–3%, concurrently fostering a 6–7% increase in employment, indicating the realization of a ‘double dividend.’ An analysis of variations demonstrates that non-state enterprises, foreign-owned companies, and industries with substantial pollution levels experienced the most significant benefits, particularly with heightened positive impacts on employment observed in Western regions. Upon delving into the mechanisms involved, it becomes evident that initial job losses were offset by the emergence of new positions due to the expansion in output and the effects of substituting factors resulting from green investments catalyzed through the carbon trading initiative. These compelling findings strongly advocate for the widespread implementation of market-based tools on a national scale, providing robust support for concurrently addressing environmental concerns and promoting livelihood objectives within the specific context of China.