Did carbon trade improve green production performance? Evidence from China

Carbon-emission Trading Scheme (ETS) in China has been put in force since 2013 in some pilot provinces/cities and the nationwide ETS under construction is expected to operate soon. Experience and lessons in the pilot markets are of great value. One preliminary issue worth an investigation is whether the pilot ETSs worked cost-effectively. To answer that question, we construct a Difference-in-Difference (DiD) model in this paper to test if the pilot ETSs improved green production performance (GPP). Because the GPP is not a statistical index yet, we use a non-radial directional distance function (NDDF) in a non-parametric data envelop analysis (DEA) framework to evaluate the GPP for 10 provinces (4 with pilot ETSs while 6 without an ETS) in eastern China over 2006–2016. We find: (1) GPP in all the provinces increased over time. However, most of the provinces have great potentials to further improve their GPP. (2) The average GPP in the treatment group (with pilot ETSs) was larger than that in the control group (without an ETS). The GPP differences between the two groups increased after the pilot ETSs were implemented. (3) The pilot ETSs significantly improved the GPP by approximately 10%. (4) The GPP in the treatment group has been improved since the pilot ETS policy was released in late 2011 rather than the pilot ETSs were put in force starting from 2013. (5) Due to the low carbon prices in the pilot markets, the impact of the pilot ETSs on the GPP decreased after 2013.