Policy-induced carbon rebound: unintended consequences of energy consumption permit trading policy in China

Market-oriented energy governance instruments are increasingly adopted globally as a critical carbon mitigation strategy. However, their potential to trigger rebound effects remains contentious. This paper establishes a city-level carbon rebound index (CRI) and leverages China’s energy consumption permit trading policy (ECPTP) as a natural experiment to identify its causal effect on rebound magnitude. Our findings reveal: (1) The ECPTP significantly elevates urban carbon rebound levels by 21.19%, underscoring inherent tensions between efficiency mandates and emission mitigation. (2) This rebound effect is amplified in southern cities, resource-abundant regions, and metropolises. (3) Compliance pressures stemming from ECPTP’s short-term evaluation framework suppress green innovation persistence and reinforce carbon-intensive sectoral lock-in, thereby jointly exacerbating carbon rebounds. China’s experience, as discussed in this paper, offers valuable and transferable lessons for other emerging economies designing energy quota markets under carbon constraints.