Is the Energy Quota Trading Policy a Solution to the Decarbonization of Energy Consumption in China?

Abstract

The energy quota trading policy is a pivotal market-oriented environmental regulation policy that propels the reform of the energy structure. Utilizing panel data from 30 provinces in China covering the period from 2012 to 2022, this study employed a difference-in-differences model to systematically examine the influence of the energy quota trading policy on the decarbonization of energy consumption, and further explores two transmission mechanisms of green technology innovation and energy consumption intensity through mechanism tests. The study reveals several key findings: (1) The energy quota trading policy significantly enhances the decarbonization of energy consumption. (2) This policy encourages the adoption of clean energy by fostering green technological innovation and decreasing overall energy consumption. As a result, it makes a considerable contribution to the decarbonization process in energy usage. (3) The heterogeneity analysis demonstrates that in areas with low levels of industrialization and plentiful resources, as well as within the Yangtze River Economic Belt and the central and western regions, the effects of the policy are significantly more pronounced. Conversely, in regions characterized by high industrialization and limited resources, particularly in the eastern region, the effectiveness of the policy is comparatively diminished. Furthermore, this study not only offers empirical evidence supporting the optimization and enhancement of the energy quota trading policy but also presents recommendations for improving the trading market, regional policies, and fostering green technological innovation.