Trading our way to a greener future: how environmental rights trading reduces urban carbon emissions in China-empirical analysis based on China's emission rights trading.

Abstract

Environmental rights trading (ERT) is considered one of the crucial instruments for environmental governance in China, accelerating urban low-carbon sustainable development. This study utilized the Chinese Emissions Trading System (ETS), which has been implemented most widely, longest, and most typical, to represent ERT and examine its contribution to urban carbon emission reduction. Through a quasi-natural experiment perspective, urban panel data were collected from 2003 to 2019, and a time-varying difference-in-differences model and moderating models were developed. The study indicates that ERT can significantly reduce carbon emissions in cities, with robust results. In addition, the carbon reduction effect of ERT varies by city region, type, and size. This phenomenon is more obvious in central and western cities and resource-based cities. Finally, a framework to strengthen the carbon reduction effect of ERT was creatively constructed. The strengthening effects of green innovation, industrial structure, and clean energy are evident. This helps provide evidence for ERT layout and extension, especially in countries with high carbon reduction needs such as China. ERT affects not only policymakers but also a greener future for every organization and individual in the city.