Could carbon emissions trading scheme improve total factor carbon emissions performance? Evidence from cities of China

Carbon emissions trading scheme (ETS) is a market-based measure to reduce carbon emissions. Evaluating the impact of carbon ETS on total factor carbon emissions performance (TFCEP) is of great significance to carbon emissions reduction and high-quality economic development in China. However, whether China's carbon ETS can improve TFCEP remains to be answered. Using the difference-in-differences model, super-efficient Slacks-based measure method and Malmquist-Luenberger index, this study evaluates the impact of carbon ETS on TFCEP and decomposition items of TFCEP based on the data during 2003-2017. Then, the heterogeneity effect of marketization and environmental enforcement are analyzed. The influencing mechanisms are tested from the perspective of industrial structure and green innovation and the moderating effect of carbon price and trading volume is also examined. The results show that carbon ETS could significantly improve TFCEP, and mainly improve the two decomposition items of efficiency change and scale technological change. Heterogeneity analyses show that the positive impact is more significant in cities with high levels of marketization and stricter environmental enforcement. Mechanism analyses suggest that carbon ETS could improve TFCEP by promoting industrial structure and green innovation. In particular, carbon prices and trading volume are confirmed to enhance the role of carbon ETS in promoting TFCEP. The results provide a new reference for Chinese government to use the market-based tool to reduce carbon emissions while maintaining economic growth.