Reduction Effect of Carbon Emission Trading Policy in Decreasing PM_2.5 Concentrations in China

Carbon emissions trading is a market-based tool for solving environmental issues. This study used a difference-in-differences (DID) approach to estimate China's carbon trading pilots to reduce PM_2.5 concentrations. The results of this quasi-natural experiment show that the carbon trading policy effectively reduces PM_2.5 by 2.7 μg/m³. We used a propensity score matching (PSM-DID) method to minimize selection bias to construct a treatment and a control group. The results show the policy effect is robust, with a PM_2.5 concentration reduction of 2.6 μg/m³. Furthermore, we employed a series of robustness checks to support our findings, which notably indicate that the effect of carbon trading on reducing PM_2.5 differs across regions over the years. The western region of China tends to be the most easily affected region, and the early years of carbon trading show slightly greater reduction effects. Our findings provide valuable policy implications for establishing and promoting carbon trading in China and other countries.