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An “Inverted U” Impact of Carbon Trading Prices on Carbon Emissions—Evidence from China

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  • Qiao, Xiyuan
  • Tang, Xinmeng

Abstract

From the perspective of industrial enterprise profits, this study explores the theoretical mechanism underlying the inverted U- shaped relationship between carbon trading prices in the carbon emissions trading market and carbon dioxide emissions. Using panel data from 300 Chinese cities covering the period 2005–2023, a continuous difference-in-differences model was employed to examine the non-linear effects of carbon trading prices on carbon emissions. The results indicate that carbon prices in local carbon markets may lead to increased emissions when prices are low, while emission reduction effects emerge only when prices exceed a critical threshold. Robustness checks support the baseline results. Mediating mechanism tests reveal that industrial enterprise profits serve as the channel through which carbon prices exert their inverted U-shaped impact on emissions. The regional heterogeneity analysis revealed that the inverted U-shaped impact of carbon prices on carbon emissions is more pronounced in northern regions and the Yangtze River Basin compared to the Pearl River Basin, with a stronger transmission effect.

Suggested Citation

  • Qiao, Xiyuan & Tang, Xinmeng, 2026. "An “Inverted U” Impact of Carbon Trading Prices on Carbon Emissions—Evidence from China," 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri 404835, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea26:404835
    DOI: 10.22004/ag.econ.404835
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