Has China's pilot emission trading system promoted technological progress in industrial subsectors?

Under the 'dual carbon' goal, the key to environmental-friendly economic development is to increase total factor productivity (TFP) in a greener way. However, as a key market-based emission reduction mechanism, the exploration related to whether the emission trading system (ETS) promotes green TFP (GTFP) is not deep enough, especially for secondary decomposition of this technical index and for specific industrial subsectors. In this study, combining biennial Malmquist-Luenberger productivity index with multi-period difference in differences model, we assess the technological progress of China's pilot ETS dynamically. The results show that the pilot ETS promoted GTFP significantly in the industrial subsectors, by 8.5%. The technology change index increased by 17.5%, which is the key action path to increasing GTFP. Furtherly, the mechanism test confirms that the policy works mainly through innovation channel. This study implied that the governance toward carbon-zero economies could be accelerated much more effectively by technological innovation of green.

Automated summary

This study combines the Malmquist-Luenberger productivity index with a difference-in-differences model to evaluate the technological progress of China's pilot ETS. The results show that the pilot ETS significantly promoted green total factor productivity in industrial subsectors, with technology change being the key driver of improvement.