Research on the emission reduction effects of carbon trading mechanism on power industry: plant-level evidence from China

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Abstract

Purpose

Carbon trading mechanism has been adopted to foster the green transformation of the economy on a global scale, but its effectiveness for the power industry remains controversial. Given that energy-related greenhouse gas emissions account for most of all anthropogenic emissions, this paper aims to evaluate the effectiveness of this trading mechanism at the plant level to support relevant decision-making and mechanism design.

Design/methodology/approach

This paper constructs a novel spatiotemporal data set by matching satellite-based high-resolution (1 × 1 km) CO ₂ and PM _2.5 emission data with accurate geolocation of power plants. It then applies a difference-in-differences model to analyse the impact of carbon trading mechanism on emission reduction for the power industry in China from 2007 to 2016.

Findings

Results suggest that the carbon trading mechanism induces 2.7% of CO ₂ emission reduction and 6.7% of PM _2.5 emission reduction in power plants in pilot areas on average. However, the reduction effect is significant only in coal-fired power plants but not in gas-fired power plants. Besides, the reduction effect is significant for power plants operated with different technologies and is more pronounced for those with outdated production technology, indicating the strong potential for green development of backward power plants. The reduction effect is also more intense for power plants without affiliation relationships than those affiliated with particular manufacturers.

Originality/value

This paper identifies the causal relationship between the carbon trading mechanism and emission reduction in the power industry by providing an innovative methodology for identifying plant-level emissions based on high-resolution satellite data, which has been practically absent in previous studies. It serves as a reference for stakeholders involved in detailed policy formulation and execution, including policymakers, power plant managers and green investors.

Related collections

Most cited references 56

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Coady Wing, Kosali Simon, Ricardo A. Bello-Gomez (2018)

The difference in difference (DID) design is a quasi-experimental research design that researchers often use to study causal relationships in public health settings where randomized controlled trials (RCTs) are infeasible or unethical. However, causal inference poses many challenges in DID designs. In this article, we review key features of DID designs with an emphasis on public health policy research. Contemporary researchers should take an active approach to the design of DID studies, seeking to construct comparison groups, sensitivity analyses, and robustness checks that help validate the method's assumptions. We explain the key assumptions of the design and discuss analytic tactics, supplementary analysis, and approaches to statistical inference that are often important in applied research. The DID design is not a perfect substitute for randomized experiments, but it often represents a feasible way to learn about casual relationships. We conclude by noting that combining elements from multiple quasi-experimental techniques may be important in the next wave of innovations to the DID approach.