Opportunity or trap - the policy effect of China’s energy quota trading

Ruohan Zhang, Shali Wang, Jingyu Li, Jiaxi Wu and Zheng Meng

Applied Economics, 2025, vol. 57, issue 25, 3361-3376

Abstract: This paper assesses the policy effect of the energy quota trading (EQT) policy from the perspectives of energy consumption, economic growth, and energy intensity, based on the panel data of 30 provinces in China from 2006 to 2019. The energy intensity has been decomposed into technical effect and structural effect using the LMDI model. The triple difference method, the corresponding parallel dynamic trend test and the placebo test are employed in this study. The result suggests that the EQT policy is capable of suppressing the growth of energy consumption, and will not dampen economic growth. Moreover, the policy facilitates the decrease of energy intensity in China. The EQT policy has spurred energy technology innovation, improved energy efficiency, and exerted about innovative compensation effects. However, the initial allocation of energy quota is free, thus leading to the structural effect of enterprises converging to high-energy-consumption industries. Compared with the white certificate policy, the EQT policy has some defects in the regulatory mechanism and operating rules. It is imperative for the policymakers to formulate guiding policies when considering the policy shocks of the above low industrialization area on the rapidly developing country.

Date: 2025
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DOI: 10.1080/00036846.2024.2337779

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