Environmental regulation, carbon emissions and green total factor productivity: a case study of China

In the context of green economy development, efforts and measurements aimed to balance the relationship between the economy and environment have been vigorously promoted. Among these regulations, the policy of China's carbon emissions trading (CET) pilot, one of the market-based environmental regulations, is favorable for China to take a path that can trigger both improvement of environmental quality and optimization of economic structure. In this paper, we adopt the slacks-based measure and data envelopment analysis (SBM-DEA) model considering the undesired output and the Luenberger function to measure and decompose the green total factor productivity (GTFP) and verify the policy effect of CET on environment, economy and productivity through difference-in-differences (DID) approach. The results showed are as follows: (1) the policy of CET has promoted the reduction of carbon emission, whereas its impact on the industrial output is not significant. (2) We show that in the short turn, the CET policy does not immediately contribute to improvement of GTFP, whereas its effect on technological progress decomposed of GTFP is positive. The results indicate that CET regulation has produced environmental dividend and improved the technological progress, but there is no Porter effect. Overall, our results provide actual evidence for deepening the nationwide carbon emission trading system.