Assessing the Effectiveness of Market-Oriented Environmental Policies on CO 2 Emissions from Household Consumption: Evidence from a Quasi-Natural Experiment in Carbon Trading Pilots

Xiang Li, Yuzhuo Huang () and Ken’ichi Matsumoto
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Xiang Li: School of Business, Heze University, 2269 Daxue Road, Mudan District, Heze 274015, China
Yuzhuo Huang: School of Business, Heze University, 2269 Daxue Road, Mudan District, Heze 274015, China
Ken’ichi Matsumoto: Faculty of Economics, Toyo University, 5-28-20 Hakusan, Bunkyo-ku, Tokyo 112-8606, Japan

Sustainability, 2024, vol. 16, issue 22, 1-25

Abstract: The enhancement of the carbon trading mechanism signifies a gradual transition in China’s environmental regulatory framework, shifting from a command and control approach to a market-based incentive model. Despite the significance of this shift, existing research has insufficiently explored the impact of market-oriented environmental policies on consumption-based emissions. This study leverages the carbon trading policies implemented in 2013 as a quasi-natural experiment, combined with a precise measurement of urban and rural household carbon emissions (HCE) during 2005–2021. Employing a difference-in-differences method, we evaluate the heterogeneous impact of these policies on urban and rural HCE. The results demonstrate a significantly negative effect of the policies on indirect HCE, a conclusion that remains robust across various placebo and robustness tests. Furthermore, we identify the transmission mechanisms through which carbon trading policies affect the reduction in HCE. The results indicate that the policy has a significant negative impact on indirect HCE, with a notable urban–rural difference. The effect of the policy is −0.829 for urban areas and −0.365 for rural areas, a conclusion that remains robust across various placebo and robustness checks. Additionally, we identified two transmission mechanisms through which carbon trading policies operate: financial deepening and employment effects. Lastly, we found that carbon trading policies can reduce carbon inequality between urban and rural areas by 46.8%.

Keywords: market-oriented environmental policies; carbon trading; household consumption; CO 2 emissions; rural–urban disparity (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
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