Market tools for achieving carbon unlocking: Is China's energy-consumption trading policy effective?

S. Weng, R. Benkraiem (), X.-H. Nghiem, X. Zhao and J. Xu
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R. Benkraiem: Audencia Business School

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Abstract: In the context of the current shift from "dual control" of energy consumption to "dual control" of carbon emissions, formulating reasonable energy policies is crucial for breaking free from a high-carbon development path and promoting a transition to low-carbon economy. However, despite the energy trading system being an important institutional arrangement in China's energy market reform, research remains scarce regarding its effectiveness in reducing dependence on high-carbon energy and industries formed in the economic development, or in mitigating urban carbon lock-in. By applying the difference-in-differences method to the panel data of 283 cities in China, this paper empirically examines the impact characteristics and mechanisms of energy rights trading on urban carbon lock-in. Empirical results confirm that this energy trading system inhibits urban carbon unlock-in and leads low-carbon economy development. Notably, the optimization of energy production, allocation, and utilization is the main pathway for reducing carbon lock-in through the energy rights policy, with fossil energy prices playing an effective regulatory role. Additionally, the effect of pilot policy is relatively stronger in resource-based cities, cities with low energy market segmentation, and those with weak climate policy uncertainty. Moreover, while policy implementation can curb carbon lock-in in the region, it may have the opposite effect on neighboring regions.

Keywords: Energy-consumption trading system; Carbon lock-in; Difference-in-differences model; Policy effect evaluation (search for similar items in EconPapers)
Date: 2025-08
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Published in Journal of Environmental Management, 2025, 389, pp.126162. ⟨10.1016/j.jenvman.2025.126162⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05490233

DOI: 10.1016/j.jenvman.2025.126162

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