Carbon neutrality endeavors: the impact of carbon emission trading policies on total factor carbon emission efficiency

Deepening the carbon market allocation reform is a strong support for carbon peaking and carbon neutrality. China has been piloting carbon trading in batches since 2013. However, there is little literature on whether and how carbon emission trading (CET) improves total factor carbon emission efficiency (TFCEE). To fill this gap, this study first calculates urban TFCEE using an extended Epsilon-based model and then designs a quasi-natural experiment based on causal inference. The staggered DID model is adopted to investigate the impact of CET pilot policies on urban TFCEE and its impact mechanism. Our results show that (1) the CET policy has a significant promoting effect on TFCEE in pilot cities, and this conclusion is reconfirmed by adopting robustness tests. (2) The mediating effect models are employed to confirm the mediating role of green technology innovation, industrial structure upgrading, and resource allocation efficiency in CET policy promoting regional TFCEE. (3) The heterogeneity test of CET policy depicts a considerable positive impact on TFCEE in cities with abundant resources. Eastern and developed cities are more likely to experience better carbon efficiency promotion through this policy than other cities. This study provides evidence for the important role of CET in promoting the development of a low-carbon economy and carbon neutrality.