Exploring the effects of energy quota trading policy on carbon emission efficiency: Quasi-experimental evidence from China

Deepening the reform of energy market allocation is an endogenous motivation that strongly supports carbon peaking and carbon neutrality. China launched a pilot policy of energy quota trading (EQT) in 2016, yet little literature examines its effect on carbon emission reduction. To fill this gap, based on a quasi-natural experimental design with causal inference, this paper employs a difference-in-differences approach to explore the effect of the pilot EQT policy on carbon emission efficiency, as well as the spatial spillover effect, and its influential mechanisms. Results show that the EQT policy can contribute significantly to the improvement of carbon emission efficiency with a dynamic effect of about 3 years. The policy is more likely to promote carbon emission efficiency in northern cities than in southern cities. Also, the positive effect of the EQT policy on carbon emission efficiency is larger and more significant in cities with richer resource endowments than in other cities. It is important that the EQT policy promotes carbon efficiency by stimulating green technology innovation, mitigating energy misallocation and optimizing transportation networks. Moreover, this policy exhibits spatial spillover effect on emission reductions for neighboring areas, and synergetic pollution reduction effect for other air pollutants. This paper expands a theoretical framework for the relationship between EQT and carbon emission reduction. Our evidence highlights the essential role played by EQT in facilitating the low-carbon economy development and carbon neutrality.