China’s Pilot Carbon Market:Institutional Design for Industrial Low-Carbon Transition

Wang Wenju1, Qian Xinxin*2

1 School of Economics, Capital University of Economics and Business, Beijing, China

2 School of Business, Liaocheng University, Liaocheng, China

Abstract: This study explores the mechanisms by which China’s pilot carbon emissionstrading schemes (ETS) facilitate industrial low-carbon transitions. We construct atheoretical model and conduct an empirical analysis using provincial panel data from sevenpilot provinces spanning 2006-2021. Applying a multi-period difference-in-differences(DID) approach, we evaluate the environmental and economic impacts of the pilot ETSpolicies. The findings yield three key insights: (1) The pilot ETS significantly reducescarbon emission intensity and improves low-carbon total factor productivity (TFP), therebypromoting China’s industrial low-carbon transition. (2) Mechanism analysis indicates thatthe ETS primarily operates through cost constraints and industrial structural upgrading,while the effect of technological progress has yet to fully materialize. (3) Heterogeneityanalysis reveals that the policy’s effects are more significant in regions with higher levelsof economic development and R&D investment, leading to greater carbon intensityreductions and productivity gains. In addition, regions with higher foreign direct investment(FDI) experience more substantial improvements in low-carbon TFP, possibly reflectingtechnology spillover effects.

Keywords: Pilot carbon emissions trading scheme; Industrial low-carbon transition;

JEL Classification Codes: L52; O13

DOI: 10.19602/j.chinaeconomist.2025.09.03