The heterogeneous effects of emissions trading systems on energy consumption

Various measures have been proposed to reduce energy consumption (and ultimately emission) among which emission trading scheme (ETS) has been on top of the agenda. However, the majority of the existing literature focuses on the general impact of ETS while ignoring its potential heterogeneous effects. This paper investigates the influence of ETS on energy consumption with respect to different groups of stakeholders in China's Hubei province. To overcome the shortcomings of traditional econometric methods, the distribution dynamics method (which can capture transition probabilities and future evolutions) is employed. Empirical results confirm the significant and inhibiting impact of ETS on energy consumption in Hubei province, China. The superior role of benchmark and historical allocation methods in mitigating energy consumption is also confirmed. As the ETS can lower energy consumption in different areas (urban and rural), different types of firms (State-owned and private) and different industries (high- and low-polluting ones), Hubei provincial leaders are recommended to utilize this kind of scheme to decouple economic growth and energy consumption, thus protecting the environment in this area. Furthermore, other provinces in China may take the Hubei ETS as a shining example and implement appropriate steps similar to those of the Hubei ETS to yield similar benefits. • This paper investigates impact of the emission trading scheme (ETS) in China's Hubei province. • Dynamic distribution methods are employed. • Hubei's ETS is confirmed to reduce firms' energy consumption. • The effects of ETS are consistent across firms' types, location and industries.