Can Carbon Finance Optimize Land Use Efficiency? The Example of China's Carbon Emissions Trading Policy

Land resources have become one of the major factors limiting urban development in China. In the context of sustainable development, how to improve land use efficiency (LUE) has become a major challenge on the road to sustainable development in China. Carbon finance provides a new idea for sustainable development. With the help of carbon emissions trading policy (CETP), this paper aims to investigate whether carbon finance can optimize LUE in terms of economic effects and environmental effects. Based on the data of 158 prefectural-level cities in China from 2010 to 2017, this paper uses a combination of qualitative and quantitative analysis to investigate these issues. Specifically, this paper measures the land use efficiency from economic effects (LUE_Eco) and environmental effects (LUE_Env) using the entropy method, and visualizes the data to obtain information on their spatio-temporal evolution patterns. Furthermore, this paper verifies the causal relationship between policy implementation and LUE_Eco and LUE_Env by using the difference in differences (DID) method. The conclusions show that: (1) the levels of LUE_Eco and LUE_Env in the pilot regions generally increase after the implementation of the CETP, but only the increase of LUE_Env is due to the policy implementation; (2) the CETP not only effectively reduces CO2 emissions, but also promotes the reduction of industrial 'three wastes' emissions. Accordingly, this paper has gained insights on how to improve LUE in China.