Effects of emission trading system on green total factor productivity in China: Empirical evidence from a quasi-natural experiment

Abstract The establishment of a carbon trading market is crucial for China to fulfil its carbon emission commitments through a market mechanism. As a market-based environmental regulation instrument, Emission Trading Scheme (ETS) has been attracted increasing attention worldwide, while the effect of ETS on low-carbon economy efficiency (LEE) has not been fully investigated, thus inspiring us to fulfil this research gap. Using the panel data of China’s 283 selected prefecture-level cities during 2006–2017, we adopted the difference-in-differences (DID) model, propensity-score-matched DID (PSM-DID) model, and the spatial DID model to model the direct and indirect effects of China’s ETS on LEE at national, regional, and local (resource-based cities with different development stages) levels. The robust results yield that ETS directly and significantly improved China’s LEE at the national level. Still, the LEE in ETS pilot region will increase by approximately 4.3% compared with untreated cities, while the spatial heterogeneity of this effect is captured at regional and local levels, which emphasises the necessity of a completed market construction and classified supervision. The results of this paper provide important insights for strengthening the policy design of a nationwide carbon market, and a reference point for other regions and countries, especially developing countries, in refining a carbon trading market. 

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Quantify the Effect of China’s Emission Trading Scheme on Low-carbon Eco-efficiency: Evidence from China’s 283 Cities

China's pollutant discharge management is based on the current government-led administrative approval system. Although some regions have carried out the pilot work of emission trading, they have not formed a legal basis and a system of standardization and haven't been promoted. The purpose of this paper is to analyze the causes and design and construct the framework of China's emissions trading system. Firstly, the resource allocation efficiency of emission trading is analyzed from the micro-economic point of view, and the total transaction cost is analyzed by the dynamic analysis method. Then the obstacle principle of system implementation is found. Although the establishment of a market with clear property rights contributes to the reduction of total transaction costs, the rapid increase of government transaction costs in the short term has affected the implementation of the system. The conclusion is that the government should bear the short-term cost, and use the electronic trading system and establish a broad market with a wide range of participants to reduce the operating cost of the system, so as to achieve the promotion and effective operation of the emission trading system. Keywords—transaction cost theory; emission trading; system construction

Xiaoyong Zhang

Papers

Research on the Construction of China's Emission Trading System from the Perspective of Transaction Cost Theory