The Beneficial Spatial Spillover Effects of China’s Carbon Emissions Trading System on Air Quality

Between 2013 and 2020, China had implemented a pilot cap-and-trade carbon emissions trading system (ETS) in some cities. Previous research has reported that this policy significantly reduces air pollution in the policy-implementing districts. However, whether and to what extent there are spatial spillover effects of this policy on air pollution in other regions has not been sufficiently analyzed. The research objective of this study is to quantitatively assess the spatial spillover effects of China’s carbon ETS on air pollution. Based on data from 288 Chinese cities between 2005 and 2020, this study employs a multiple linear regression approach to estimate the policy effects. Our study finds that the policy significantly reduces the concentrations of black carbon (BC), nitrogen dioxide (NO2), organic carbon (OC), particulate matter less than 1 micron in size (PM1), fine particulate matter (PM2.5), and particulate matter less than 10 microns in size (PM10) in non-ETS regions. This indicates that the carbon ETS has beneficial impacts on air quality beyond the areas where the policy was implemented. The heterogeneity tests reveal that the beneficial spatial spillover effects of the ETS can be observed across cities with different levels of industrialization, population density, economic development, resource endowments, and geographical locations. Further mechanism analyses show that although the policy does not affect the degree of environmental regulation in other regions, it promotes green innovation, low-carbon energy transition, and industrial structure upgrading there, which explains the observed spatial spillover effects.