The effectiveness of carbon emission trading system: Evidence from China's regional markets

A carbon emission trading system for China's road freight transport: considering reward and punishment ladders

ABSTRACT Amid climate change, emissions trading systems (ETS) aim to balance environmental regulation and economic growth, but two key questions persist: Do they effectively stimulate firm-level carbon innovation, and do they inadvertently induce cross-regional pollution transfer? This paper uses China's ETS as a quasi-natural experiment, focusing on A-share listed firms in pilot regions and employing the difference-in-differences method. The findings show that the ETS promotes carbon innovation among pilot firms while driving them to establish subsidiaries in non-pilot regions, causing pollution transfer. Heterogeneity analysis indicates that ETS design features (allocation methods, carbon prices, offset ratios, enforcement stringency) and firm characteristics (fixed asset proportion, financial constraints, political connections) significantly affect policy outcomes. To enhance ETS effectiveness, optimize market design through scientific quota allocation, price controls and offset reforms and establish cross-regional collaborative oversight to spur carbon innovation and curb pollution leakage.

The Impact of a Carbon Emissions Trading System on Technological Innovation for Renewable Energy Companies in China

Abstract This study examined the impact of China’s carbon emission trading system (ETS) pilot program (2007–2021) on the environmental, social, and governance (ESG) performance of listed companies in high–carbon emission industries using a difference-in-differences model. Benchmark regression results show that ETS significantly enhances corporate ESG performance, supported by robustness tests including parallel trends, individual/time placebo tests, and omitted variable analysis. The effect is stronger for non-state-owned enterprises, manufacturing companies, and those in central or western China. ETS improves ESG performance by reducing industry concentration (external driver) and alleviating financing constraints while boosting carbon performance (internal drivers), although social attention shows limited influence. The findings provide empirical evidence for refining the ETS policies in China and globally to aid sustainable transitions in high–carbon emission industries through market-driven environmental governance and corporate accountability.

The carbon emission trading system is an effective policy tool to realise carbon emission reduction. However, environmental regulation will inevitably affect economic and social operation, how to realize the coordination between pro-moting environmental protection and stabilising employment is a question that needs to be answered urgently. Based on the micro data of listed companies and the macro data at the city level from 2010 to 2021, this paper uses multi-period DID to study the impact of the carbon emissions trading system on labor de-mand and its mechanism. It is found that the carbon emission trading system reduces the labor demand of enterprises but increases the employment of cities, and the overall employment effect is positive. The mechanism test shows that the carbon emission allowance trading system causes the reduction of enter-prise labor demand mainly through the factor substitution effect, skills, and there is a different effect of the policy effect. Further research shows that the carbon emission right trading system make the flow of labor from polluting in-dustries to non-polluting industries and from non-pilot areas to pilot areas. Therefore, the policy effect is inconsistent between micro and macro effects. The findings of this paper provide a useful reference for improving the carbon trading system and safeguarding employment

The carbon emission trading system is considered as an effective tool for reducing emissions of road freight transport. As key participants in the carbon emission trading market for road freight transport, the strategies and behaviors of both the government and drivers play a crucial role in determining the effectiveness of emission reduction efforts. In the context of the carbon emission trading market for road freight transport, this paper developed an evolutionary game model between government and drivers. To identify the key factors influencing the strategic choices of government and drivers, the dynamic evolutionary paths of government and drivers under different scenarios were simulated. The results indicated that the initial willingness of the government and drivers does not significantly impact their final strategy choices. Additionally, the dynamic subsidy emerges as a critical factor influencing government decision-making. A higher carbon price and freight revenue are found to boost drivers’ incentives to reduce emissions. can stimulate the enthusiasm of drivers to reduce emissions. The findings of this paper offer theoretical insights into drivers’ emission reduction strategies and government regulation, and provide valuable references for the future development of China’s carbon emission trading market for road freight transport.

This paper takes China's first batch of carbon emission trading pilot cities (Shanghai, Beijing, Tianjin, Chongqing) as the research objects. Based on the carbon emission and nitrogen oxide emission data from 2011 to 2023, it comprehensively uses the Regression Discontinuity Design (RDD) and the Generalized Difference-in-Differences Model (RDD-DID) to systematically evaluate the environmental governance effects and pollutant emission reduction effects of the carbon emission trading system. The study finds that after the implementation of the "Guiding Opinions on Further Promoting the Pilot Work of Paid Use and Trading of Emission Rights" in 2015 in Shanghai, the coefficient of the policy treatment term is significantly negative (estimated value -0.572, p<0.01), indicating that the carbon emission trading system has significantly reduced nitrogen oxide emissions, and control variables such as economic development level (GDP), population density, and foreign direct investment (FDI) have a positive synergistic effect on emission reduction. However, due to the relatively mature carbon trading system in Beijing, the policy incentive effect is not significant. The RDD-DID model extended to the four municipalities directly under the Central Government shows that the overall emission reduction effect of the policy is significant (YPost coefficient -4.45, p<0.01), but the interaction term coefficient between the activity of carbon emission trading and the policy is significantly positive (0.238, p<0.01), revealing that resource crowding, side effects of technical substitution, and market mechanism fragmentation may weaken the synergistic governance effect of multiple pollutants. The study suggests integrating the market rules of carbon emission rights and emission permits, strengthening the local environmental assessment mechanism, and optimizing the differentiated pricing strategy to improve the synergistic efficiency of environmental policies and provide theoretical support for the construction of a national unified environmental rights market.

Does carbon emission trading system facilitate corporate digital transformation? Evidence from China

ABSTRACT Resource misallocation is an important factor that restricts a country’s economic growth. As a comprehensive environmental policy, the carbon emissions trading policy (CETP) provides a new perspective on resource allocation. This article utilizes multi-period difference-in-difference (DID) model and provincial panel data spanning from 2000 to 2021 to empirically examine the impact of CETP on resource misallocation in China. The study found that after addressing endogeneity issues and conducting a series of robustness tests, the CETP can improve resource misallocation by enhancing marketization and promoting green technology innovation (GTI). There is also evidence suggesting that the effect of CETP on improving resource misallocation exhibits spatial heterogeneity and varies with the operational characteristics of different carbon markets. The research conclusion provides empirical evidence for each region to scientifically optimize the CETP, alleviate barriers to the flow of production factors, and achieve high-quality economic development.

The asymmetric effects of European carbon emission trading system on European stock market returns: The moderating role of oil price uncertainty

Chinese public building carbon emissions trading system (CETS) pilots have employed different carbon quota methods over more than ten years. However, there are few quantitative comparisons on CETS emission reduction effects in different pilots based on the carbon quota analysis. This paper first calculates the annual carbon quotas of public buildings based on carbon quota allocation methodologies from municipal policy documents. Then, the factors affecting the carbon quotas of public buildings are analyzed. Finally, the emission reduction effects are analyzed and compared between the pilots. The findings are concluded as follows: (1) Public building stock area and energy efficiency demonstrate significant effects on the carbon quota. (2) The average annual carbon quota deficits of public buildings were 929,800 tons in Beijing and 596,000 tons in Shanghai, while the carbon quota was an annual surplus of 296,400 tons in Shenzhen, indicating that carbon quota allocations in Beijing and Shanghai pilots are more conducive to promoting the active participation of high-emission enterprises. (3) The emission reduction effect in Beijing is most pronounced, followed by Shanghai and finally Shenzhen. Accordingly, the reasons for the difference in emission reduction effects are analyzed. This study contributes to the carbon quota allocation and emission reduction of public buildings.

As the world’s largest developing country and the large economy with carbon emission, China has opened 8 markets for carbon emission trading. This article uses the method of information entropy to study the dependence relationship within China’s carbon emission trading system from 2017 to 2021, and characterizes the core structure and dynamic evolution process of this dependence relationship. Research has found that, firstly, there is a broad dependence among the 8 carbon emission trading markets in China, and this dependence is changing with the process of economic development. Especially after China proposed the carbon peaking and carbon neutrality goals in 2020, the correlation between the 8 carbon markets has been significantly strengthened. Secondly, China’s carbon market presents a north-central-south distribution pattern, and the carbon market in the south is more important, which is also in line with the pattern of China’s economic development. Finally, the carbon market in Guangdong province has a higher level of development nationwide and plays an important role in China’s carbon emission trading system. This province has two carbon emission markets, namely the Shenzhen market and the Guangdong market, which are at the core of China’s carbon market system. This is closely related to the economic development level and industrial development model of Guangdong province. Based on the above conclusions, this study suggests that China’s carbon market can start from economically underdeveloped regions, fully leverage the latecomer advantages of these regions, and gradually introduce derivative products such as carbon futures in the development of the carbon spot market, improving the liquidity and effectiveness of the carbon market while avoiding the risks of the carbon spot market. Meanwhile, a reasonable determination of carbon market prices also requires the joint efforts of the market and the government.

The Carbon Emissions Trading System (ETS) serves as a market-based mechanism to drive renewable energy (RE) investments, yet its heterogeneous impacts on different stakeholders remain underexplored. This paper treats the carbon market as an exogenous shock and develops a multi-agent equilibrium model incorporating carbon pricing, encompassing power generation enterprises, power transmission enterprises, power consumers, and the government, to analyze how carbon prices reshape RE investment layouts under dual-carbon goals. Using panel data from Zhejiang Province (2017–2022), a high-energy-consumption region with 25% net electricity imports, we simulate heterogeneous responses of agents to carbon price fluctuations (CNY 50–250/ton). The results show that RE on-grid electricity increases (+0.55% to +2.89%), while thermal power declines (–4.98% to −15.39%) on the generation side. Transmission-side RE sales rise (+3.25% to +9.74%), though total electricity sales decrease (−0.49% to −2.22%). On the consumption side, RE self-generation grows (+2.12% to +5.93%), yet higher carbon prices reduce overall utility (−0.44% to −2.05%). Furthermore, external electricity integration (peaking at 28.5% of sales in 2020) alleviates provincial entities’ carbon cost pressure under high carbon prices. This study offers systematic insights for renewable energy investment decisions and policy optimization.

Although carbon emissions trading systems are universally acknowledged as one of the most potent policy instruments for counteracting hazardous climate trends, and digitalization is seen as a favorable technological means to promote corporate green and low-carbon transformation, few studies have investigated the dark side of both. Using data on Chinese listed companies from 2011 to 2020 and adopting a multi-period DID methodology, this research reveals that, in response to the carbon emissions trading system, firms often adopt low-cost, strategic environmental governance behaviors—namely, carbon washing—to reduce compliance costs and maintain their reputation and image. Furthermore, the study reveals that the information advantages of digital transformation create conditions for the opportunistic manipulation of carbon disclosure. Digitalization amplifies the positive influence of the carbon trading system on corporate carbon washing behavior. Mechanism analysis confirms that the carbon emissions trading system increases the production costs of regulated firms, thereby increasing their carbon washing behavior. Economic consequence analysis confirms that firms engage in carbon washing to gain legitimacy and maintain their reputation and image, which may allow them to obtain opportunistic benefits in the capital market. Finally, this study suggests that the government should adopt supplementary policy tools, such as environmental subsidies, enhanced use of digital technologies to strengthen regulatory capacity, and increased media oversight, to mitigate the unintended consequences of the carbon trading system on corporate behavior.

Between 2013 and 2020, China had implemented a pilot cap-and-trade carbon emissions trading system (ETS) in some cities. Previous research has reported that this policy significantly reduces air pollution in the policy-implementing districts. However, whether and to what extent there are spatial spillover effects of this policy on air pollution in other regions has not been sufficiently analyzed. The research objective of this study is to quantitatively assess the spatial spillover effects of China’s carbon ETS on air pollution. Based on data from 288 Chinese cities between 2005 and 2020, this study employs a multiple linear regression approach to estimate the policy effects. Our study finds that the policy significantly reduces the concentrations of black carbon (BC), nitrogen dioxide (NO2), organic carbon (OC), particulate matter less than 1 micron in size (PM1), fine particulate matter (PM2.5), and particulate matter less than 10 microns in size (PM10) in non-ETS regions. This indicates that the carbon ETS has beneficial impacts on air quality beyond the areas where the policy was implemented. The heterogeneity tests reveal that the beneficial spatial spillover effects of the ETS can be observed across cities with different levels of industrialization, population density, economic development, resource endowments, and geographical locations. Further mechanism analyses show that although the policy does not affect the degree of environmental regulation in other regions, it promotes green innovation, low-carbon energy transition, and industrial structure upgrading there, which explains the observed spatial spillover effects.

The impact of carbon emission trading system on the implied cost of equity capital

Does the carbon emission trading system facilitate public building carbon dioxide emission reduction in China?

Can the carbon emission trading system contribute to the synergistic reduction in carbon and pollutant emissions in China? A marginal abatement cost perspective

This study employs the TVP-VAR-BK-DY spillover index model to investigate the risk spillover effects between China’s carbon emission trading system (ETS) pilots and A-share listed emission-regulated enterprises. The findings reveal that, due to the nascent stage of China’s carbon market, the overall risk spillover level within the “carbon-stock” system remains low; however, dynamic risk spillovers have shown an upward trend driven by the advancement of ETS pilots. In particular, during compliance periods, enterprises that exceed their emission limits must purchase sufficient allowances on the carbon trading market to avoid high penalties for non-compliance. This creates substantial demand, which drives a rapid increase in the spot prices of carbon allowances, triggering intense short-term price fluctuations and risk spillovers—a pronounced “compliance-driven trading” effect. Frequency domain analysis indicates that long-term shocks have a significantly greater impact on the market than short-term oscillations, reflecting moderate information processing efficiency within the “carbon-stock” system. Directional spillover analysis shows that A-share enterprises initially absorb risks from the carbon market in the short term, but over the long term, they transmit part of these risks back to the carbon market, forming a significant bidirectional risk transmission relationship. Furthermore, heterogeneity analysis reveals marked differences in risk spillover contributions among firms associated with different ETS pilots, as well as between enterprises with polluting behaviors and those with high ESG scores, with the latter contributing considerably higher spillovers to the overall carbon market. These findings offer nuanced insights into the dynamic, structural, and firm-level characteristics of risk spillovers, providing valuable guidance for policymakers and investors to enhance market stability and optimize investment strategies.