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From carbon emission trading to inequality: The regressive effects of China’s ETS via residential carbon footprints

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  • Jia, Zhijie
  • Zhang, Hanyan

Abstract

While reducing global carbon emissions, the Emission Trading Scheme (ETS) may negatively affect social equity. This paper adapts a microeconomic theoretical framework to demonstrate that the negative impact of carbon trading on utility arises through carbon footprints. Its regressive nature stems from income, consumption propensity, and elasticity. We estimate the carbon footprints of Chinese households by utilizing household-level data combined with industry-based emission coefficients. Using a PSM-DID approach, we evaluate the impact of China's ETS pilot on household welfare, proxied by the Engel coefficient. The results indicate that the ETS significantly increases households' Engel coefficients. Furthermore, the negative impact of the ETS policy is particularly pronounced for low-income households; the higher the annual household income, the smaller the negative effect of the policy. This suggests that the carbon emissions trading system exacerbates inequality to some extent and exhibits regressive effects. The ETS affects residents' utility through changes in the carbon footprints of consumed goods, with wealthy households experiencing less impact from the ETS on their consumption carbon footprints. Therefore, consumption is a significant source of the regressive effects of carbon trading, which also implies potential directions for redistribution policies.

Suggested Citation

  • Jia, Zhijie & Zhang, Hanyan, 2025. "From carbon emission trading to inequality: The regressive effects of China’s ETS via residential carbon footprints," Energy Economics, Elsevier, vol. 152(C).
    • Handle: RePEc:eee:eneeco:v:152:y:2025:i:c:s0140988325008254
    DOI: 10.1016/j.eneco.2025.108995
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