Can China's Carbon Emission Trading Make a Difference? A quasi experimental analysis of the ETS pilot scheme

Sammanfattning: With an aim to reduce carbon emissions and thus cope with the climate change, China initiated its Emission Trading System (ETS) in several pilot regions since 2013. In this thesis I investigate the CO2 emission reduction effect of the China ETS pilot scheme, which could serve as an important indicator to infer how the forthcoming national ETS will perform in the future. Based on the city-level panel dataset of CO2 emissions along with the city characteristics from 2003 to 2017, I apply the Difference-in-Differences (DID) estimator to capture the reduction of CO2 emissions induced by the ETS pilot scheme in the participating cities. In order to tackle the latent confounding factors, a propensity score matching (PSM) strategy is also adopted. The results of PSM-DID model specification indicate that the ETS pilot scheme can significantly reduce the CO2 emissions by around 8% in participating cities. Moreover, I find that there is no significant heterogeneity in ETS treatment effect across cities with different income levels. I further conduct placebo tests of changing ETS treatment timings and treatment group compositions as well as other sensitivity tests to check the robustness of the estimates. Additionally, I also investigate the impacts of the ETS pilot scheme on local economy and air quality in the pilot cities. No strong evidence is found to support the argument that the ETS would cause losses in jobs or outputs in the regulated industry. (JEL H23 Q51 Q54 Q58)