The impact of emissions trading system on corporate energy efficiency: Evidence from a quasi-natural experiment in China

This study investigates the effects of market-incentive environmental regulations on corporate energy efficiency. Using the SO2 emissions trading system in 2007 in China as a quasi-natural experiment, we employ the difference-in-difference-in-differences approach based on Chinese firm-level data from 2003 to 2010, and empirically examine whether the emissions trading system in China has achieved a win-win situation between environmental effects and energy efficiency. The results show that the implementa-tion of the emissions trading system does improve the energy efficiency of firms. A plausible mechanism appears to be the strengthening of front-end prevention of firms, through which firms reduce their usage of primary energy to transform energy structure, thus improving their energy efficiency. The hetero-geneity analysis shows that the results are more pronounced for private and export-oriented firms, firms with larger sizes, firms in the lifecycle of maturity or decline and firms that are capital-intensive. This study provides clear implications by shedding light on the effects of market-incentive environmental regulations on energy efficiency. (C) 2021 Elsevier Ltd. All rights reserved.

Automated summary

This study investigates the effects of market-incentive environmental regulations on corporate energy efficiency by using the SO2 emissions trading system in China as a quasi-natural experiment. The results show that the emissions trading system improves firms' energy efficiency by potentially strengthening front-end prevention measures and reducing their usage of primary energy. Heterogeneity analysis reveals that the effects are more pronounced for certain types of firms, such as private, export-oriented, and capital-intensive firms.