Has the Environmental Protection Tax Contributed to China’s ‘Dual Carbon’ Targets?

Following the formal implementation of the Environmental Protection Tax Law of the People’s Republic of China in 2018, debate has persisted regarding its policy effectiveness, particularly concerning its impact on carbon emissions. In the context of the ‘dual carbon’ targets, accurately evaluating the emission-reduction effects of the environmental protection tax is of considerable policy significance. This study treats the 2018 transition from pollution discharge fees to the environmental protection tax (hereinafter referred to as the ‘fee-to-tax reform’) as a quasi-natural experiment. Utilising provincial-level panel data from China spanning 2007 to 2022, and employing TWFE, DID, and SDM-DID models, the analysis comprehensively assesses the impact of the fee-to-tax reform on per capita carbon emissions and carbon emissions intensity. The findings indicate that the transition from pollution discharge fees to the environmental protection tax significantly curbed the growth of both carbon emissions and carbon emission intensity; this result remains robust across a series of sensitivity tests. Heterogeneity analysis demonstrates that regions with a higher degree of ‘greening’ in their tax systems experience more pronounced reductions in carbon emissions. Further spatial econometric analysis reveals that while the environmental protection tax effectively curbs local carbon emissions, it may also increase the risk of ‘carbon leakage’ to neighbouring regions. These results provide empirical evidence and policy guidance to refine the design of environmental tax systems and promote coordinated regional carbon emissions reductions.