Do green and low-carbon development policies affect carbon markets? Evidence from China

Yue Xu, Yu Kuang and Dayu Zhai

Applied Economics, 2025, vol. 57, issue 35, 5322-5343

Abstract: Responses of carbon prices to emission reduction policies can imply the market incentive effect of certain policies and effectiveness of carbon markets. The article collects 51 policy events related to green and low-carbon development implemented by the Chinese government from December 2013 to December 2023. Applying the event study method, it discusses the short-term reaction of carbon prices in China’s regional carbon markets to individual events, classified events, and events as a whole. In addition, five diplomatic statements of the Chinese government in multilateral climate governance process are selected, and a panel regression model is constructed to analyse the long-term reaction of carbon prices to each statement. The results are as follows: First, statements of the Chinese government in climate diplomacy have long-term incentive effect on carbon markets. Second, China’s green and low-carbon development policies have brought significant market incentives overall. Among the national, regional and industrial policies, the national and industrial policies have the most significant positive influence on carbon prices in the short term. Third, Hubei, Fujian and Shenzhen carbon markets are more effective. China should actively participate in multilateral climate diplomacy and climate governance, establish a more detailed low-carbon policy system, and improve the scale and activity of carbon markets.

Date: 2025
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DOI: 10.1080/00036846.2024.2364922

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