The joint impact of the carbon market on carbon emissions, energy mix, and copollutants

Abstract

From a comprehensive standpoint, this paper investigates whether and to what extent the carbon market functions in the context of the developing world. Taking advantage of a unique seven-year-plant-level panel dataset (2010–2016) on Chinese power plants, we use a matched difference-in-differences strategy to identify the joint impact of China’s carbon emissions trading (CET) pilot policy on carbon emissions reduction (objective), energy mix improvement (mechanism), and air copollutant reduction (cobenefits). We find that China’s CET pilot policy effectively lowered carbon emissions by approximately 38.61%. Further analysis shows that plants reduce carbon emissions primarily by reducing coal consumption (approximately 30.79%). Most importantly, China’s CET pilot policy induces substantial air copollutant abatement benefits by reducing sulfur dioxide and nitrogen oxides by approximately 52.19% and 48.62%, respectively. State-owned plants are more affected by China’s CET pilot policy, and the policy effects show disproportionate environmental inequality. Furthermore, the effects are not affected by the rate-based allowance allocation structure that is adopted by China’s national carbon market.