Evaluating regional carbon emissions trading in China: effects, pathways, co-benefits, spillovers, and prospects

Emissions trading systems (ETS) have been a widely-adopted policy instrument for global climate mitigation and a key choice in China’s pledge for peaking emissions and carbon neutrality. Broader adoption and linkage of ETS programmes require a better understanding of whether, to what extent, and how existing regional programmes address carbon emissions at an aggregate level. Combining a synthetic control method and event studies, we adopt a comprehensive evaluation framework to investigate regional mitigation effects, pathways, and ancillary impacts in three Chinese regions with four independent pilot ETS programmes. The findings show economy-wide responses to pilot announcement even in non-ETS sectors, but enduring mitigation only within ETS sectors. Mitigation was achieved via improvement in energy efficiency and fuel switch, without impairing industrial activities. There were local air-pollution reduction co-benefits but no leakage or spillover. Bounded extrapolation from the pilots suggests 18%–20% reductions can be achieved in non-pilot regions by a national market, which could learn from pilots’ experiences to broaden sector coverage and ensure policy consistency and transparency. Regional ETS were able to stabilize emissions with little cost, providing rationale for rapidly developing economies to adopt such systems. Key policy insights Despite being unlinked, regional ETS pilots delivered substantial climate mitigation and local air pollution reduction in China. Policy effects were initially driven by economy-wide mitigation due to policy expectations, followed by ETS-sector mitigation due to carbon pricing. Industries reduced CO₂ emissions from energy efficiency improvements and fuel switch. Mitigation was accompanied by little emission leakage or impairment to the economy. Extrapolating mitigation rates in a national market suggests 18%–20% reduction of CO₂.