Evaluating the Well-Being Effects of a Carbon Emissions Trading System: Evidence from 273 Chinese Cities

Overview

This study examines the relationship between carbon emissions trading systems and well-being outcomes across 273 prefecture-level cities in China over a 13-year period from 2008 to 2020. The research addresses how market-based environmental policy instruments affect population well-being through multiple transmission channels and under varying institutional and economic contexts. The analysis employs quantitative measurement of well-being through composite indicators and evaluates policy effects through quasi-experimental methods that account for the staggered implementation of carbon trading systems across Chinese cities. The investigation extends beyond aggregate effects to explore mechanisms, moderating factors, and heterogeneity across different regional and economic classifications.

Methods and approach

The research applies the Entropy Weight Method-Technique for Order Performance by Similarity to Ideal Solution (EWM-TOPSIS) model to construct a multidimensional measure of well-being from municipal-level panel data. A staggered Difference-in-Differences model serves as the primary causal identification strategy, exploiting the temporal and spatial variation in carbon emissions trading system implementation across cities. Mechanism analysis investigates green technology innovation as a potential transmission channel through which the policy affects well-being outcomes. The study incorporates interaction terms and threshold regression models to assess how fiscal expenditure decentralization and marketization degree moderate the policy impact. Heterogeneity analysis disaggregates results by regional classification, specifically examining Yangtze River Economic Belt cities versus other regions, and by resource endowment status, comparing resource-based cities with non-resource-based cities.

Results

The carbon emissions trading system demonstrates a positive overall effect on well-being outcomes across the sample of Chinese cities. Green technology innovation emerges as the primary mechanism driving this relationship. Fiscal expenditure decentralization negatively moderates the policy effect on well-being, exhibiting a double threshold pattern, while marketization degree shows no significant moderating effect but displays a single threshold effect. Substantial heterogeneity characterizes the policy impacts across different contexts. The carbon trading system enhances well-being in regions outside the Yangtze River Economic Belt but produces negative effects within YREB cities. Similarly, non-resource-based cities experience positive well-being effects from the policy, whereas resource-based cities show no statistically significant response. These divergent outcomes suggest that local economic structures and institutional arrangements substantially condition how carbon trading systems translate into well-being outcomes.

Implications

The findings indicate that carbon emissions trading systems can generate co-benefits beyond emissions reduction, specifically through well-being improvements mediated by green technology innovation. However, the heterogeneous effects across regions and city types suggest that uniform carbon trading policies may produce uneven welfare distributions, with some localities experiencing well-being gains while others face potential welfare losses. The negative moderating role of fiscal expenditure decentralization points to potential coordination challenges between environmental policy instruments and fiscal institutional arrangements. The absence of well-being effects in resource-based cities and negative outcomes in YREB regions highlight the importance of considering local economic structures and existing development patterns when implementing market-based environmental policies. These results suggest that complementary policies or differentiated implementation approaches may be necessary to ensure that carbon trading systems produce broadly distributed well-being improvements across diverse economic and institutional contexts.

Disclosure

• Research title: Evaluating the Well-Being Effects of a Carbon Emissions Trading System: Evidence from 273 Chinese Cities
• Authors: Yupeng Zheng, Jiying Wang, Zhaoyang Zhao, Jinyun Guo
• Publication date: 2026-01-07
• DOI: https://doi.org/10.3390/systems14010059
• OpenAlex record: View
• Image credit: Photo by Mike Hindle on Unsplash (Source • License)
• Disclosure: This post was generated by artificial intelligence. The original authors did not write or review this post.