Research into China's Energy-use Rights Trading System (ERTS) reveals a complex picture of policy success and unintended consequences across regional boundaries. By analyzing 270 Chinese cities over a decade, researchers measured green total-factor energy efficiency—a metric combining energy productivity with environmental outcomes—and discovered that the policy delivered substantial benefits to designated pilot cities while simultaneously weakening performance in surrounding areas.
The mechanism behind this disparity centers on resource allocation patterns. Pilot cities participating in the trading system increased research and development spending, restructured their energy portfolios away from fossil fuels, and achieved better overall resource management. These improvements compound over time, strengthening competitive advantages. However, this progress comes at a cost: adjacent non-pilot cities experienced reduced R&D investment, deteriorating energy structures, and misallocated resources as capital and industrial activity migrated toward pilot zones.
The study employed a spatial-difference-in-differences model to isolate policy effects from other economic factors, finding that effects intensified significantly in cities with larger populations, stronger industrial foundations, and greater human capital concentration. Larger pilot cities generated stronger negative spillovers on neighbors, suggesting that agglomeration effects amplify competitive pressures on surrounding regions.
These findings carry important implications for dual-carbon policy design in China and globally. While the ERTS successfully drives efficiency improvements in participating areas—an essential objective for emissions reduction—policymakers must address the geographic inequality it creates. The research suggests that complementary policies supporting non-pilot regions, technology transfer mechanisms, or adjusted trading frameworks could mitigate adverse spillovers without sacrificing pilot-city gains.
Future refinements should consider spatial heterogeneity and cross-regional equity, ensuring that carbon reduction targets do not simply shift burdens to less-developed neighboring areas. The findings underscore a critical principle: effective climate policy requires balancing local performance gains with broader regional development equity.
