A market instrument to achieve carbon neutrality: Is China's energy-consumption permit trading scheme effective?

The Chinese government implemented the energy-consumption permit trading scheme (ECPTS) pilot program in 2016, in order to achieve energy saving and carbon reduction. Based on the PSM-DID model, we attempt to test the effects of the ECPTS on energy consumption and energy intensity. With a counterfactual simulation, this paper also evaluates the potential gains and different mechanisms of this policy. The results show that, under the constraints of the established resources and policy efficiency, there is a positive relationship between the ECPTS and low-carbon economic transformation; the implementation of the above policy in the pilot provinces brought about an average energy saving of 43 Mtce during the period of 2016-2019. However, the potential gains of this policy need to be further increased to meet China's energy control targets. Additionally, a complete mediating effect of the energy structure indicates that the impact of the ECPTS on energy consumption and energy intensity depends significantly on energy structure adjustments. Finally, this paper highlights the key policy implications associated with the empirical results.

Automated summary

This study tested the effects of the ECPTS on energy consumption and energy intensity using the PSM-DID model, finding a positive relationship between the policy and low-carbon economic transformation. While the policy led to significant energy savings in the pilot provinces, further efforts are needed to meet China's energy control targets. Adjustments in energy structure play a crucial role in determining the impact of the ECPTS on energy consumption and intensity.