Impact of China’s carbon emissions trading scheme on urban air quality: a time-varying DID model

Using panel data for 277 Chinese cities, this paper applies a time-varying difference-in-differences (DID) model to empirically test the impact of China’s carbon emissions trading scheme (ETS) on urban air quality, and further explores its heterogeneity and the mechanisms involved. The results show that ETS can improve urban air quality. This conclusion remains robust through a series of robustness tests, including PSM-DID estimation, varying window periods, exclusion of significant events, lag phase, and placebo tests. The dynamic effect test indicates that ETS has a continuous and effective effect on improving urban air quality. Mechanism analysis reveals that the degree of marketization can enhance the improvement effect that ETS has on urban air quality. Meanwhile, industrial structure upgrading and green technology innovation are important mechanisms by which pilot ETS policy improves urban air quality. Regional heterogeneity analysis finds that ETS only improves urban air quality in eastern and central regions.