Heterogeneous responses to carbon pricing: Firm-level evidence from Beijing emissions trading scheme

Beijing’s emissions trading scheme (ETS) is one of the earliest with sustained high permit prices among seven CO2 ETS pilots in China. Using a fuzzy regression discontinuity design with a unique emissions data set for firms participating in Beijing’s ETS, we study firms’ reactions to carbon pricing. We find that, on average, the ETS reduced firms’ carbon emissions by 39% 3 years after the policy was introduced, but responses varied: emissions were reduced by about 45% in the industrial sector, but there was hardly any change in the service sector. By looking into potential abatement mechanisms of industrial firms, we find that their emissions reduction was realized mainly through reducing coal consumption, without significantly reducing output and energy intensity. The effects on firms in the industrial sector are partly amplified by firms subject to overlapping regulations targeting heavily polluting and energy-intensive producers, highlighting heterogeneous responses for firms facing multiple regulatory pressures.