Does the carbon emission trading policy enhance carbon sinks? Evidence from Chinese cities

Effective environmental regulation is critical for China to reach its carbon neutrality goal. This study employs city-level panel data to evaluate the impact of the carbon emission trading (CET) policy on net primary productivity (NPP), a key measure of carbon sinks. The relevant results are threefold. (1) The CET policy is correlated with a 3.37% increase in NPP by reducing air and water pollution, which is confirmed through multiple rigorous robustness tests. (2) The CET policy primarily boosts NPP in high-industrialisation or high-environmental-concern cities, with no significant effect in cities lacking these characteristics. (3) Beyond elevating pilot cities’ NPP, the CET policy has positive spillover effects, increasing neighbouring non-pilot cities’ NPP as well. The findings indicate that developing economies in a comparable industrialisation phase to China can address climate challenges by adopting a phased CET policy. They should also elevate government and public environmental awareness, while accounting for the policy’s spatial spillover effects.