Market-based environmental regulation and carbon emission reduction: evidence from China’s carbon emission trading market

Purpose With the official launch of the national carbon emission trading market, carbon emission trading is gradually integrated into social production activities. As a market-based environmental regulation tool, carbon emission trading provides a critical entry point for studying the effectiveness of market-based environmental regulations in reducing carbon emissions. This study aims to explore the impact and transmission mechanisms of market-based environmental regulations on CO2 emission reductions to help achieve China’s “dual carbon” goals. Design/methodology/approach This study utilizes provincial panel data from 2009 to 2020 to construct mediation and moderating effect models, and employs the Difference-in-Difference (DID) method to evaluate policy effects. Findings Further analysis shows that carbon emission trading reduces carbon emission intensity by increasing the use of renewable energy and local green technologies. Additionally, the implementation of green finance policies positively moderates the emission reduction effects of carbon emission trading policies. The results suggest that market-based environmental regulations promote carbon emission reductions. Originality/value This study reveals the importance of the use of renewable energy and the development of green technologies in the construction of carbon emission trading markets. Also, a policy synergy analysis can gain a more intuitive insight into the positive regulatory effect of green finance policies on carbon emission trading.