The effect of Clean Development Mechanism on energy transition and its spillovers: Evidence from Chinese cities

By engaging in international carbon credit trading, developing countries can attract international funding and technology to support domestic low-carbon projects, contributing to their energy transition as well as further sustainable development. As the first attempt at international carbon credit trading, the Clean Development Mechanism (CDM) serves as a typical sample for testing its effectiveness. Based on the panel data of 282 Chinese cities during 2005–2015, we analyze the impact of CDM projects on the energy transition of cities where they are hosted. We find that CDM contributes to the energy transition through improving the energy system performance and transition readiness, with the latter channel playing a more prominent role. The contribution of CDM to energy transition is more prominent for projects with large-scale, belonging to new and renewable energy type or other type, with low marginal abatement costs, as well as cities that are non-resource-based or with high technology absorption capacity. CDM projects have spatial spillover effects on the energy transition of neighboring cities through the energy system performance channel. Besides, CDM projects also exert electricity-supply-chain spillover effects, and the channels of bidirectional spillovers vary by the direction of electricity transmission. The CDM implementation of electricity-output cities improves the energy transition of electricity-input cities through the energy system performance channel, while the CDM implementation of electricity-input cities promotes the energy transition of electricity-output cities through the transition readiness channel. The conclusions provide beneficial enlightenment for developing countries to engage in the international carbon credit trading under Article 6.4 of the Paris Agreement and promote the energy transition.