Research on fiscal policies supporting green and low-carbon transition to promote energy conservation and emission reduction in cities: Empirical evidence from China

Abstract

Cities have emerged as critical and challenging places for promoting the green and low-carbon transformation of the economy and society in the context of the “dual carbon” targets. Meanwhile, fiscal policy is also an indispensable component of the public policy framework supporting the green and low-carbon transformation. This paper uses the pilot project of “Comprehensive Demonstration Cities for Energy Conservation and Emission Reduction Fiscal Policies” (“ECER-CD” policy) implemented in China since 2011 as a quasi-natural experiment. This research theoretically analyzes and empirically tests the energy conservation and emission reduction effects of fiscal policies supporting green and low-carbon transformation utilizing methodologies such as time-varying DID and multiple periods and multiple groups of DID. The study finds that the pilot cities effectively reverse the behavioural bias of local governments and promote energy conservation and emission reduction efforts. This conclusion holds after undergoing robustness tests such as parallel trend analysis and heterogeneity treatment effects. The effectiveness of the pilot policy is attributed to the upgrade of industrial structure, improvement of energy efficiency, and the effects of green technology innovation. However, cities’ geographic location and resource dependency can interfere with the effective implementation of policies. This paper also further explores the environmental dividends and economic consequences of the policy and finds that the pilot cities have certain environmental dividends and do not significantly restrain economic and social development. This study broadens the research perspective on fiscal policies in energy conservation and emission reduction and clarifies the pathways through which fiscal policies promoting green, low-carbon transformation drive energy conservation and emission reduction in cities. Moreover, it also improves the use of the Difference-in-Differences method in evaluating policy effects in scenarios such as the overlapping implementation of pilot policies and policy withdrawal. Finally, this paper proposes policy recommendations to provide more empirical evidence for China to accelerate the green and low-carbon transformation of the economy and society.