Do CO2 emissions trading schemes deliver cobenefits? evidence from shanghai

Peer Reviewed
23 December 2021

Jie-Sheng Tan-Soo, Lili Li, Ping Qin, Xiao-bing Zhang

While ex-ante evaluations of climate mitigation policies predict that co-benefits of improved air quality will enable the aggregate benefits of climate mitigation policies to outweigh their costs, there is little empirical evidence to support this assertion. In this study, we use data on weekly smokestack emissions of sulfur dioxide (SO2) from firms participating in Shanghai’s carbon dioxide (CO2) emissions
trading scheme (ETS) to deliver one of the first ex-post evaluations on the cobenefits of China’s ETS. Using a panel-regression model in which all firms’ characteristics and seasonal effects are controlled, we find a significant negative association between CO2 emissions prices and industrial SO2 emissions (elasticity of −0.13). A closer examination reveals that most of these effects were driven by
specific sectors (iron and steel) and during months in which firms were required to balance their annual CO2 emissions. To ensure our results are not driven by confounding factors and our model’s assumptions, we conducted several falsification checks using SO2 emissions from non-ETS firms and firms from a nearby city, using various model specifications. Our findings suggest that cobenefits from climate mitigation policies should not be taken for granted, and that policy designs and types of sector sources of emissions are important determinants of co-benefits.

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Sustainable Development Goals
Publication reference
Tan-Soo, J.-S., Li, L., Qin, P., & Zhang, X. (2021). Do CO2 emissions trading schemes deliver co-benefits? Evidence from Shanghai. Climate Policy, 22(1), 64–76.
Publication | 21 March 2022