The effects of energy quota trading on total factor productivity and economic potential in industrial sector: Evidence from China

Energy quota trading is critical to both energy conservation and the achievement of dual-carbon goals. However, little remains to be done on total factor productivity and economic potential for Chinese industry. The purpose of this paper is to counterfactually model and explore the effects of energy quota trading on total factor productivity and economic potential in industrial sector. We propose a command-controlled DEA model and an energy quota trading DEA model through non-parametric linear programming based on two policy strategies of energy consumption control. We then assess total factor productivity and its growth sources for 35 two-digit industrial sector in China, as well as examine economic potential and optimal path forecasts for carbon peaking. The results show that total factor productivity and economic potential for energy quota trading are higher than those for command-controlled energy policy. Energy-saving effect can be achieved for energy quota trading because the total energy input is lower. Additionally, the sources of productivity growth differ in timing. The average economic potential and total factor productivity of different industries differ due to the heterogeneity of the production conditions and scale of development of individual market players. Moreover, the catch-up emission reduction path with an increase of 8% in output and 4.76% in energy consumption is the optimal carbon peaking path under energy quota trading. Our findings shed valuable light on China's efforts to expand energy quota trading for high-quality development in the context of carbon peaking.