Well‑Being Effects of China’s Emissions Trading System

This study measures people’s well‑being across 273 Chinese prefecture‑level cities from 2008 to 2020 and evaluates how a carbon emissions trading system affected that well‑being. Using a composite well‑being index and a staggered difference‑in‑differences approach, the authors find that the policy generally improved well‑being. The main pathway identified is stimulation of green technology innovation. The study also finds that local fiscal spending autonomy weakens the policy’s positive effect while market development does not alter it, and that effects vary by region and resource endowment.

What the study examined

This research looks at how a carbon emissions trading system influenced people’s well‑being in 273 prefecture‑level cities in China over the period 2008–2020. Well‑being was measured with a combined index built from multiple indicators, and a staggered Difference‑in‑Differences design was used to compare outcomes across cities and over time.

The analysis also explored the mechanisms behind any change in well‑being and whether local conditions altered the policy’s effects. In particular, the study examined the roles of green technology innovation, fiscal expenditure decentralization, and the degree of marketization. Heterogeneous effects across regions and between resource‑based and non‑resource‑based cities were assessed.

Key findings

Overall, the emissions trading policy is associated with an improvement in people’s well‑being across the sample of cities. The evidence points to green technology innovation as the primary channel through which the policy produced gains in well‑being.

• Fiscal expenditure decentralization reduces the positive impact of the policy on well‑being, acting as a negative moderator.
• The degree of marketization does not show a moderating effect on the policy’s impact.
• Threshold analyses indicate that fiscal decentralization has a double threshold effect and marketization shows a single threshold effect, suggesting non‑linear interactions with the policy’s outcomes.

The policy’s effects are not uniform. Regionally, the policy improved well‑being in areas outside the Yangtze River Economic Belt but was associated with reduced well‑being within cities inside that economic belt. By resource endowment, the policy positively affected well‑being in non‑resource‑based cities, while its effect in resource‑based cities was not statistically significant.

Why it matters

These findings link an environmental policy instrument to broader social outcomes by identifying a likely innovation channel that supports improved living standards. The results highlight that local fiscal arrangements can influence how such a policy translates into well‑being changes.

Variation across regions and city types underscores that policy impacts can differ depending on local economic and institutional contexts. Understanding these differences can inform how similar market mechanisms and complementary institutional settings are considered when evaluating social effects of environmental policies.