Natural resources, carbon trading policies and total factor carbon efficiency: A new direction for China’s economy

The role of natural resources is important not only for carbon emissions but also for the overall sustainable development of an economy. With the dual pressure of the worsening global climate problem and the deteriorating domestic environment, carbon emissions and other greenhouse gas emissions must be solved urgently. Consequently, assessing China’s “carbon trading” policies' effect on total factor carbon efficiency is essential to achieving China’s carbon neutrality objectives. Using the Difference-in-Difference estimation model and panel data in 30 provincial-level administrative regions within China from 2000 to 2020, this study examines the effect of “carbon trading” policy on total factor carbon efficiency. The study’s findings indicate that the carbon trading policy encourages total carbon efficiency development. Additionally, the conclusions are robust. Moreover, the results show that the mediation effect analysis indicates that a “carbon trading” policy promotes increasing total factor carbon efficiency through decreasing total energy consumption, optimizing the energy structure, increasing technological innovation, and increasing forest coverage. The heterogeneity analysis reveals that enacting carbon trading policies in the central and western regions is more effective at fostering the enhancement of total factor carbon efficiency. Based on these findings, policy recommendations are made to promote the enhancement of total factor carbon efficiency and attain China’s “Carbon peaking and carbon neutrality” objective.