The effects of emission trading scheme on industrial output and air pollution emissions under city heterogeneity in China

Ecological degradation has become one of the constraints on the development of human society. To deal with pollutant emissions, governments around the world have implemented emission trading schemes (ETS). How-ever, although the effectiveness of ETS policies has been widely acknowledged, it is unclear whether the policy effects depend on regional characteristics. To address this research gap, this study integrated the propensity score matching method and multi-period difference-in-difference model (PSM-DID) to examine the impacts of ETS on industrial output and pollution emissions, and the influence of city heterogeneity on policy effects. The results showed that the ETS positively affected industrial output and negatively affected pollutant emissions in the pilot cities. Furthermore, implementation of the ETS was more conducive to increasing industrial output while reducing emissions in cities with larger populations, higher financial development levels, and worse air quality. Nevertheless, in lower industrialized cities, the ETS implementation was more prominent in promoting industrial output. In this case, the environmental effect was lower than that in cities with higher industrialized. The findings provide a better understanding of city heterogeneity of ETS policy effects.