Emission Reduction Effect, Influencing Factors and Economic Impact of China’s Carbon Market: An Empirical Test Based on a Multi-Period DID Model

Abstract

The carbon emission trading market (carbon market) is an important policy tool for China to achieve the goal of “carbon peak and carbon neutrality” through market mechanism. This paper uses panel data of 30 provinces in China from 2005 to 2019 to examine the emission reduction effect (ERE) of China’s carbon market pilots using multi-period Difference-in-Differences (DID)method, and then analyzes the factors influencing ERE and the economic impact of carbon market. According to the Bacon decomposition and a series of robustness tests, the results reveal that China’s carbon market pilots have significant ERE. Both the expansion of the carbon market scale and the improvement of market activity level can significantly boost the carbon market’s ERE. Meanwhile, the establishment of carbon market has no negative impact on the economic growth. Therefore, we propose to accelerate the construction of the national carbon market, incorporating more industries in a systematic manner, expand the scale of the carbon market, steadily promote the innovation of carbon financial instruments, improve the activity of the carbon market, so as to promote the transformation of China’s green and low-carbon economy and achieve the emission reduction target as scheduled.