Has Carbon Emissions Trading Reduced PM_2.5 in China?

China today has an urgent need to develop low-carbon policies that also address local air pollution. This study uses a difference-in-differences model to estimate the extent to which China's Emissions Trading Scheme (ETS), which directly addresses CO₂ emissions, has also generated cobenefits by reducing PM_2.5. Using monthly PM_2.5 concentration and weather data for 297 Chinese cities from January 2005 to December 2017, we find that (1) China's ETS has reduced PM_2.5 concentrations by 4.8%, and this reduction effect is strongest in summer. The results are confirmed by robustness tests including propensity score matching, mahalanobis distance matching, two placebo tests, and controlling atmospheric policies. (2) The ETS pilots have positive spillovers on neighboring nonpilot cities within 300 km of the pilot cites, especially for those downwind neighboring nonpilot cities, and the ETS's cobenefits are primarily a result of firms adopting abatement activities and adjusting industrial structure. (3) The cobenefits of China's ETS pilots are greater in regions with larger carbon trading volume and higher carbon trading price. (4) The reduction in PM_2.5 concentration caused by China's ETS may have avoided 23,363 deaths and saved $41.38 billion annually in GDP.