Promoting industrial structure advancement through an emission trading scheme: Lessons from China's pilot practice

Abstract This study explores the impact of emission trading scheme on industrial structure advancement by using the synthetic control method and the difference-in-difference (DID) method. We not only analyze the robustness of the policy effect but also empirically test the formation mechanism of the emission trading pilot to promote industrial structure advancement. The results show that the implementation of the pilot can promote the advancements of the industrial structure. However, the differences in economic development and technology levels mean that policy effects vary in different areas. Significant promoting effects were found in eight areas: Chongqing, Hubei, Hunan, Jiangsu, Inner Mongolia, Shaanxi, Shanxi, and Tianjin. Meanwhile, it has little effect in Zhejiang, Henan, and Hebei. This heterogeneous effect was further confirmed by DID analysis. The empirical analysis supports the Porter hypothesis, and technological innovation has a mediating effect on the impacts of emission trading on the industrial structure advancement. This study will be useful for policymakers to promote industrial upgrading with the help of emission trading scheme.

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