Assessing the effects of emissions trading systems on energy consumption and energy mix

The carbon emissions trading system (ETS) is expected to achieve energy transition and carbon-neutrality goals by theoretically reducing energy consumption and adjusting the energy mix. This study aims to provide firm level evidence on these effects by adopting the distribution dynamics approach, which could reveal historical transition probabilities and predict long-term evolutions. By using the unique dataset from the Hubei ETS pilot in China, this study can serve as an example for promoting ETS. The results indicate that: (1) Most firms converge to a lower relative energy consumption under ETS, resulting in reduced total energy consumption. However, it would take a long time to achieve energy transition. (2) The primary peak of the relative coal consumption distribution reduces from 0.07 to 0.02 under ETS, implying a decline in coal use. Meanwhile, the share of electricity consumption increases, indicating a switch from coal to electricity. (3) ETS would place a limit on fossil energy, and an even stricter limit on coal for firms with high energy consumption. (4) Both the total and share of energy-induced carbon emissions also decrease, implying that ETS might realize the decoupling of economic growth from fossil energy and carbon emissions.

Automated summary

This study provides firm level evidence on the effects of the carbon emissions trading system (ETS) by examining the Hubei ETS pilot in China. The results demonstrate that ETS can potentially reduce energy consumption, shift from coal to electricity, and decouple economic growth from fossil energy and carbon emissions.