Evaluating Carbon Emission Reduction Effect, Transmission Mechanism, and Carbon Market Efficiency of Carbon Emission Trading Policy: Evidence from China

The carbon emission trading policy is a key policy for China to achieve its dual carbon goals. This paper aims to examine the emission-reduction effects, transmission mechanisms, and carbon-market efficiency of China's carbon-emission trading policy from 2012 to 2023. We adopt the difference-in-differences (DID) model to analyze the effects of policy on emissions, and the empirical results from the DID model confirm that the pilot carbon emission trading policy has significantly reduced carbon emission intensity in pilot areas. Then we use the mediation model to study the transmission mechanism of the pilot carbon emission trading policy, and the mediation analysis demonstrates that the pilot carbon emission trading policy achieves emission abatement through four parallel transmission channels: scientific innovation, energy conservation, clean energy substitution, and industrial structure upgrading. Data envelopment analysis evaluates the carbon market efficiency of China. The result shows that the average carbon market efficiency of pilot areas has improved steadily, particularly from 2012 to 2023, especially in Beijing, Hubei, and Guangdong. Moreover, the efficiency of the national carbon market has shown an upward trend since its 2021 launch; it remains lower than the pilot average, constrained primarily by limited sectoral coverage, which impacts scale efficiency.