Interactions Between Multiple Environmental Markets:Addressing Contamination Bias in Overlapping policies

Tiantian Yang and Richard Tol
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Tiantian Yang: Xi’an Jiaotong University

Working Paper Series from Department of Economics, University of Sussex Business School

Abstract: To address the dual environmental challenges of pollution and climate change,China has established multiple environmental markets, including pollution emissions trading,carbon emissions trading, energy-use rights trading, and green electricity trading. Previousempirical studies suffer from known biases arising from time-varying treatment and multipletreatments. To address these limitations, this study adopts a dynamic control group designand combines Difference-in-Difference (DiD) and Artificial Counterfactual (ArCo) empiricalstrategies. Using panel data on A-share listed companies from 2000 to 2024, this studyinvestigates the marginal effects and interactive impacts of multiple environmental marketsimplemented in staggered and overlapping phases. Existing pollution emissions tradingmitigates the negative effects of carbon emission trading. Carbon trading suppresses(improves) financial performance (if implemented alongside energy-use rights trading). Theaddition of energy-use rights or green electricity trading in regions already covered bycarbon or pollution markets has no significant effects.

Keywords: Multiple environmental markets; Policy interactions; Marginal abatement cost; Contamination bias; Artificial Counterfactual; Difference-in-Difference (search for similar items in EconPapers)
JEL-codes: Q54 (search for similar items in EconPapers)
Date: 2025
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Working Paper: Interactions Between Multiple Environmental Markets: Addressing Contamination Bias in Overlapping Policies (2025)
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