Carbon mitigation effects and potential cost savings from carbon emissions trading in China's regional industry

China began a pilot carbon emissions trading scheme (ETS) in 2013. However, the real carbon mitigation effects of this policy are unclear. Moreover, the potential cost savings from internal or external trading among provinces are also uncertain. Based on panel data of 30 provincial industries from 2006 to 2015, this paper first employs a difference-in-differences model to explore the effects of the pilot ETS on industrial carbon emissions and carbon intensity. A Stochastic Frontier Analysis is then conducted to measure industrial energy efficiency and identify any carbon mitigation effects. We next use a parameterized directional output distance function to estimate the industrial carbon marginal abatement costs and analyze the potential cost savings/gains from internal trading among provinces within the same geographical regions and from external trading across regions. Results show that: (a) the pilot ETS has significant negative effects on industrial carbon emissions (10.1%) and carbon intensity (0.78%). (b) Energy efficiency plays an important role in the carbon mitigation effects. (c) the distribution of marginal abatement cost (MAC) shows significant geographical characteristics. (d) Provinces can realize greater potential cost saving/gains through regional external trading than internal trading.