The impact of a carbon trading pilot policy on the low-carbon international competitiveness of industry in China: An empirical analysis based on a DDD model

Abstract

This paper examines the impact of a carbon trading pilot policy on the low-carbon international competitiveness of an industry to test whether creating a carbon market causes the Porter effect. Using a sample of 33 industries in 30 provinces in China from 2009 to 2016 with a difference-in-difference-in-difference model (DDD) and a series of robustness tests, we find evidence of a significant positive influence of a carbon trading pilot policy on the low-carbon international competitiveness of industries covered by the pilot programs. Research on its influencing mechanism reveals that a carbon trading pilot policy promotes the low-carbon international competitiveness of industries by driving low-carbon technological progress. Furthermore, a heterogeneity analysis of industry characteristics and carbon allowance allocation methods in different pilots indicates that the impact of a carbon trading pilot policy on industry low-carbon international competitiveness is reflected mainly in industries with low-carbon emissions, high state-owned capital, and high export intensity. Compared with the grandfather method and the historical intensity method, the low-carbon international competitiveness of an industry is significantly increased when the benchmarking method is used. The results of this paper offer important insights for improving the policy design of a nationwide carbon market, as well as a reference point for other countries and regions, especially developing countries, in establishing a carbon trading market.