The impact of carbon emission trading schemes on urban-rural income inequality in China: A multi-period difference-in-differences method

Abstract This study evaluates the impacts of China's pilot carbon ETS on urban-rural income inequality. Based on panel data of 273 cities in China from 2010 to 2018, we apply the multiple periods difference-in-differences method in a quasi-natural experiment setting. The results show that carbon ETS can significantly reduce the level of urban-rural income inequality by 8.11% in China. More specifically, the carbon ETS is associated with a 10.23% decrease in income inequality for cities piloted in 2014, but this effect is insignificant for cities piloted in 2017. In addition, the effect of carbon ETS does not noticeably degenerate with the length of exposure to the treatment. Further analysis indicates that the ETS has stronger effects on reducing urban-rural income inequality for the cities with higher CO2 emissions and for those with higher per capita GDP. These findings imply that the implementation of carbon ETS is beneficial for reducing income equality in China and the impact of carbon ETS on income inequality is heterogeneous for different levels of CO2 emissions and different levels of per capita GDP.