Does China’s carbon emission trading scheme reduce CO2 emissions? Comprehensive evaluation from synthetic control method using lasso

• Published in: Energy reports Vol. 12; pp. 2429 - 2440
• Main Authors: Wang, Chunzi, Yan, Junpeng, Li, Jiabao
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01.12.2024
• Subjects: Carbon emission trading scheme; CO2 emissions; Placebo test; Synthetic control method using lasso; CO2 emissions; Carbon emission trading scheme; Placebo test; Synthetic control method using lasso
• ISSN: 2352-4847; 2352-4847
• DOI: 10.1016/j.egyr.2024.08.057

Although China’s carbon emissions trading scheme (ETS) serves as an effective and economically viable tool to mitigating carbon dioxide (CO2) emissions, challenges exists in accurately quantifying the ETS treatment effect. Focusing on improving the precision of evaluating the treatment effect, this study employs the synthetic control method using lasso (SCUL) to construct synthetic units for six pilot regions and makes a comparison with the synthetic control method (SCM). Based on seven predictor variables ranging from 2000 to 2017, we find that: (1) SCUL produces more accurate predictions than SCM before the intervention. SCUL generates synthetic CO2 emissions that seamlessly align with their actual counterparts throughout the pre-treatment period for six pilot regions. The average Cohen’s D values are notably lower than 0.25, standing at 0.052, 0.0314, 0.1501, 0.0412, 0.01, and 0.0346 for Beijing, Tianjing, Shanghai, Hubei, Guangdong, and Chongqing, respectively. In contrast, SCM achieves satisfactory pre-treatment fits only for Hubei, Guangdong, and Chongqing, exhibiting average Cohen’s D values of 0.2426, 0.1366, and 0.1624 respectively. (2) The in-place and in-time placebo tests implemented via SCUL both verifies the robustness of the results of SCUL. (3) SCUL and SCM yield similar results for Hubei, Guangdong, and Chongqing. This further supports the validity of SCUL’s conclusions. Additionally, SCUL offers insights into Beijing, Tianjin, and Shanghai that SCM fails to provide.