Emissions trading system (ETS) implementation and its collaborative governance effects on air pollution: The China story

Abstract

The study aims to employ the difference-in-differences method and mediating effect model to assess panel data of 267 prefectural-level cities in Chinese 30 provinces from 2003 to 2016 and empirically examines whether the Emissions Trading System pilot has realized collaborative governance effects upon air pollution. This study verifies the rationality of the element design of China's Emissions Trading System pilot from the perspective of environmental effects. The results indicate that the China's Emissions Trading System pilot does have a significant ‘reduction effect’ on haze pollution concentration level, which is probably achieved by ‘boosting the application and transformation of green technologies among enterprises’ and ‘transferring heavily polluted industries’. Moreover, the total quota allocation, total number of incorporated enterprises and the entry of institutional and individual investors were not the significant influencing factors for reducing haze pollution, while the transaction volume of China Certified Emission Reduction and the total penalty amounts incurred play significant roles. The heterogeneity test shows that only Guangdong province's policy has a significantly negative effect on haze pollution concentration. This study provides a new way of thinking for the coordinated governance mode by combining environmental governance and carbon trading scheme. The experiential evidence strongly supports the establishment and improvement of China's Emissions Trading System pilots and the implementation of a unified national carbon market.