Policy Viability and Sustainable Development: The Environmental and Technological Implications of Carbon Trading Policy in China

A decade after piloting China's carbon trading policy (CTP), studies have endeavored to assess its progress and impact on CO₂ emissions and technological innovation. However, there remain inconsistencies and gaps in the past results due to premature assessments, methodological disparity, and other notable limitations. This study employs a difference-in-differences (DiD) model using provincial panel data from 27 Chinese regions (2005–2020) to evaluate both environmental and technological outcomes of the CTP. Robustness checks using Granger causality, parallel trend tests, and fixed effects confirm the findings. The results reveal that the CTP has a negative reduction effect on CO₂ emissions among the treated areas. Moreover, it was found that the CTP has a negative impeding effect on overall technological innovation and enterprise-level innovation. The regional heterogeneity analysis indicated consistent results, except for the central region. The effects on CO₂ emissions were more prevalent among the southern provinces, and the technological effects were more prevalent among the southern provinces for overall technology innovation and the eastern provinces for enterprise innovation. The outcome of this study provides new evidence of how the CTP can be extended to other regions. It suggests that policy adjustments are required to ensure enterprises do not only focus on short-term compliance but also long-term innovation.