The Roles of Carbon Trading System and Sustainable Energy Strategies in Reducing Carbon Emissions—An Empirical Study in China with Panel Data

Abstract

Carbon emission reduction is now a vital element in urban development. This study explores the effectiveness of the two emerging methods to reduce carbon emission, which are carbon emissions trading system (ETS) and sustainable energy strategy, in the process of urbanization. We review the policy in the past decades to demonstrate the development of these two streams of carbon emission reduction methods and empirically test the effectiveness of the two methods with panel data across 30 provinces in China from 2009 to 2019. The sustainable energy strategy is confirmed to be effective in reducing carbon emissions in the region, while the effectiveness of carbon emissions trading system varies. We find that (1) substituting fossil fuel with other sustainable energy resources can effectively reduce the carbon emission; (2) the rewards from carbon emissions trading is a good incentive for the enterprises to reduce the carbon emissions; however, it is more tempting in the provinces that have the carbon emissions trading system, although the trading can be conducted across the province boarder. Our findings indicate that the sustainable energy strategy is a good practice and worth expanding to the whole country. It can be difficult for some provinces to transform and adopt the sustainable energy strategy if the fossil fuel is the major source for economic production. It is important to avoid setting fossil fuel as the main source for economic production or household consumption in the urbanization process. Meanwhile the carbon emissions trading system is found to contribute to CO2 emissions reduction only within the province. Therefore, having more provinces piloting the ETS will help the CO2 emission reduction further.