Does emission trading scheme have spillover effect on industrial structure upgrading? Evidence from the EU based on a PSM-DID approach

The coordinated development of environmental pollution and the economy has become a global problem. Emission trading scheme (ETS) has become a significant environmental policy instrument, prior studies primarily concentrated on micro-level factors with specific industries; there lacks discussion on the effects of ETS on macro-level industrial structure such as industrial structure upgrading. In this paper, we first use the propensity score matching (PSM) to screen out the control group in which countries are matched with the members of the EU, and then utilize the difference-in-differences (DID) method, to examine the effects of ETS implementation on national industrial structure upgrading in the members of the EU. Empirical results show that the EU ETS may does not have a significant impact on industrial structure change, while the implementation of EU ETS has significantly promoted the upgrading of the country's industrial structure, and the policy effect of EU ETS on industrial structure upgrading gradually increases as time goes by and there is a dynamic effect. The conclusions of this paper can be used as reference for the development of emission reduction policies in large countries with unbalanced internal development.