Does energy-consuming rights trading policy achieve urban pollution and carbon reduction? A quasi-natural experiment from China

Energy-consuming rights trading (ECRT) policy represents a critical policy instrument for China striving to achieve its "dual carbon" objectives, captivating significant attention for its potential to reduce pollution and carbon emissions. This study utilizes panel data from 290 Chinese cities spanning 2010 to 2021, leveraging the ECRT policy as a quasi-natural experiment. Employing Difference-in-Differences (DID) and Propensity Score Matching-Difference-in-Differences (PSM-DID) methodologies, we assess the effect of the ECRT policy on urban pollution and carbon reduction levels. The findings indicate: 1) Relative to non-demonstration cities, the ECRT policy significantly enhances pollution and carbon reduction levels in demonstration cities; this conclusion remains robust after rigorous testing. 2) Heterogeneity analysis indicates that the policy's effect on pollution and carbon reduction is more significant in the central and western regions, and particularly evident in key and resource-based cities. 3) Mechanism tests demonstrate that the policy facilitates urban pollution and carbon reduction by cultivating green technological innovation and industrial structure upgrading. Therefore, to further advance the ECRT policy, it is necessary to expand the breadth, depth, and flexibility of policy implementation, while also optimizing environmental regulations to fully leverage the system's potential in enhancing urban pollution and carbon emissions.