Does emissions trading affect labor demand? Evidence from the mining and manufacturing industries in China.

We use “China's sulfur dioxide (SO2) emissions trading program” as a quasi-natural experiment to identify the causal effect of this market-based environmental regulation on firm's labor demand. Based on the difference-in-differences (DID) method and a series of robustness tests, we observe robust evidence that the emissions trading program significantly increases the labor demand of regulated firms, and that this positive employment effect is driven by the expansion of firm's production scale. The observable evidence leads us to cautiously conclude that the market-based environmental regulations in even developing countries could achieve the double dividend of coexistence of environmental protection and employment growth.