Can Emissions Trading Scheme Achieve Technology Upgrading and Labor Market Improvement for Industrial Enterprises in China

To cope with the market-based environmental tool, for instance, the emissions permit trading program, industrial firms need to change production decisions and implement emissions reduction activities, which may affect their technology, labor demand and worker’s wage earnings. Using a difference-in-differences framework together with robustness checks, the research probes into the impacts of the SO2 emissions trading scheme (SETS) on SO2 emissions, TFP, employments and wages of industrial firms in China. It was noted that the program resulted in a remarkable decline not merely in SO2 emissions but also in labor demands and wages. The mechanism analyses further show that emissions reduction is mainly driven by fossil energy input decrease rather than desulfurization technology. The negative effects of employments and wages are driven by the negative output effect rather than environmental substitute effect owing to the insufficient technology upgradation. Our findings contribute to the improvement of the market-oriented environmental permit trading program and development of regulated firms in developing countries