The causal effect of carbon emission trading scheme on green TFP: Evidence from the Chinese transportation industry

Abstract

While industries globally strive to meet the 1.5-degree target set forth in the Paris Agreement, the transport sector, as the largest emitter of carbon, has yet to sufficiently reduce its emissions. This study utilizes panel data spanning from 2007 to 2022 in China and employs a time-varying difference-in-differences (DID) method to examine the causal impact of the carbon emission trading scheme (ETS) on green total factor productivity (GTFP) within the transport industry. Our empirical analysis yields several key findings: First, the implementation of the ETS policy significantly enhances GTFP in the transport sector within pilot areas. Second, decomposition of GTFP indicators reveals that the ETS primarily improves green scale efficiency and fosters green innovation, driven by technological advancements and optimal resource allocation. Third, heterogeneity analysis demonstrates a notably stronger positive effect of the ETS on transport sector GTFP in the eastern region, with insignificant impacts observed in the central and western regions. Through rigorous robustness tests, these conclusions are consistently upheld. In sum, this paper provides robust empirical evidence supporting the efficacy of ETS in reducing emissions and presents valuable policy implications for fostering the green transition of the transport sector.