The Impact of Emission Trading Systems on Carbon Reduction and Sustainable Development

Abstract : This study examines the effectiveness of carbon markets, with a particular focus on Emission Trading Systems (ETS), in advancing global commitments to net-zero emissions by 2050. Employing a High-Dimensional Fixed Effects (HDFE) regression framework, it investigates the interplay between carbon emissions, economic dynamics, and policy interventions across diverse national contexts, including Mainland China, Hong Kong, India, Bangladesh, Cambodia, Malaysia, Indonesia, the Philippines, South Korea, Singapore, and Vietnam. The findings indicate that while ETS can contribute to CO₂ reduction, its effectiveness is highly contingent on country-specific conditions, policy design, and enforcement capacity. Results demonstrate that ETS adoption does not ensure uniform or immediate emission declines, with significant heterogeneity across income groups and institutional settings. The study further explores the nexus between carbon markets and sustainable urban development, emphasizing the integration of carbon pricing with urban planning and infrastructure investment. These insights provide critical implications for designing effective, context-sensitive ETS frameworks to support sustainable development pathways.