Emission reductions, industrial competitiveness, and spillover effects under China's regional emission trading systems: Evidence from the iron and steel sector.

An emission trading system (ETS) has been consistently recognized as a promising instrument to stem massive carbon emissions from energy-intensive industries. However, it remains ambiguous whether the ETS can achieve emission mitigation without undermining economic activity in specific industries in emerging running markets. This study focuses on the impact of China's four independent ETS pilots on carbon emissions, industrial competitiveness, and spatial spillover effects in the iron and steel industry. With a synthetic control method for causal inference, we find that the achievement of emission reductions was generally accompanied by losses of competitiveness in the pilot regions. An exception to this trend was seen in the Guangdong pilot, where the aggregate emissions increased due to the incentivized output created by a specific benchmarking allocation approach. Despite impaired competitiveness, the ETS did not cause significant spatial spillovers, which alleviates concerns about potential carbon leakage under unilateral climate regulation. Our findings could enlighten subsequent sector-specific assessments of the effectiveness of ETSs and are also valuable to policymakers in and outside China now considering ETSs.