Transfer payments and carbon reduction in China: The effect of the national comprehensive demonstration city of energy saving and emission reduction fiscal policy

Abstract

To address climate change and achieve high-quality economic development, China began implementing the Comprehensive Demonstration City of Energy Saving and Emission Reduction Fiscal Policy (ESERFP) in 2011. This policy relies on special transfer payments to increase the integration of various energy conservation and emission reduction fiscal policies, thereby accelerating institutional and mechanism innovation, actively promoting economic structure adjustment and development mode transformation, and achieving energy conservation and emission reduction goals in various regions. This study uses a multi-period difference-in-difference (DID) model to estimate the ESERFP's CO2 emission reduction effect and paths. The findings demonstrate the following: (1) The ESERFP has lessened the CO2 emission intensity of the demonstration city and effectively played a role in reducing CO2 emissions. (2) Mechanism analysis demonstrates that the ESERFP has significantly improved the green travel level of residents in pilot cities and can also reduce cities' total energy consumption. Therefore, the ESERFP can effectively suppress CO2 emissions by improving transportation systems and optimizing energy consumption structures. (3) Further analysis shows that the ESERFP can reduce the CO2 emission scale of the demonstration cities and effectively promote the increase of actual per capita gross domestic product in pilot cities, bringing economic dividends and thus achieving a “win-win” situation of environmental protection and economic growth. (4) Heterogeneity analysis demonstrates that the CO2 emission reduction effect is more significant in non-old industrial-based cities, non-resource-based cities, and urban agglomerations. This study not only evaluates the CO2 reduction effect of the demonstration city but also provides reference significance for the improvement of subsequent environmental regulations. In addition, clarifying the implementation effect of the ESERFP can help alleviate ecological and environmental problems in the process of urban economic development in China and achieve the sustainable development goal of green transformation.