Does carbon emission trading policy improve agricultural energy transition? Evidence from China

The carbon emission trading (CET) policy is crucial for China to meet its goals of reaching ‘carbon peak’ and achieving ‘carbon neutrality’. However, as a market-driven environmental regulation, it remains uncertain whether the CET policy could improve the structural transition of agricultural energy consumption (AET) and what its impact mechanisms might be. This study employs provincial panel data from China between 2005 and 2022, utilizing a difference-in-differences (DID) model to explore the effect of the CET policy on AET. The CET policy has been found to significantly improve AET, based on placebo tests and robustness checks. However, the policy effects vary with regional location, the extent of labor mobility, and temporal dynamics. There are significantly positive impacts in the eastern and western regions as well as areas in China with high labor mobility. Furthermore, our analysis indicates that the CET policy’s effect on AET exhibits a time-lag, with the impact on AET progressively increasing each year after the policy takes effect. The results of the mechanism analysis indicate that agricultural green technology innovation (AGTI) could positively contribute to the CET policy’s promotion of the AET. However, we are unable to verify the influence of digital economy (DE) in this process. This study offers both theoretical over CET policy on AET, and helps identify the causal relationship between the CET policy and AET and offer insights for public policy development to support further advancements in carbon emission policy implementation.