Interaction effects of market-based and incentive-driven low-carbon policies on carbon emissions

Abstract

It is imperative to address global climate change through the formulation and implementation of low-carbon policies. While existing research predominantly analyzes individual policy impacts, this research adopts a Propensity Score Matching (PSM)-weighted Difference-in-Differences (DID) strategy, integrated with an innovative policy-matching methodology, to systematically examine the interaction effects between market-based constraint low-carbon policies and incentive-driven guiding low-carbon policies. The empirical findings underscore substantial positive interaction effects resulting from the combined implementation of these policy types. Even after meticulous control for the individual policies, the amalgamation yields a notable additional emission reduction effect of 0.0571%. This effect further intensifies, reaching 0.132%, when exclusively considering the joint impact of these policies, while robustness is maintained across varied weighting schemes. Moreover, the study elucidates the pivotal role of green innovation as a complete mediator in this synergy, with industrial restructure contributing 18.49% to the overall mediation effect. Despite the ostensibly weak constraints imposed by Low-Carbon City Pilots, the confluence of policies significantly amplifies the emission reduction effects of the Emission Trading Scheme and bolsters the impetus for green innovation. Ultimately, this study not only advances collaborative perspectives on policy effect identification but also offers valuable insights into the combined efficacy of diverse low-carbon policies.