MARKET-INCENTIVIZED ENVIRONMENTAL REGULATION, INDUSTRIAL AGGLOMERATION AND THE EFFECTS ON CARBON SHADOW PRICE: EVIDENCE FROM CHINA’S LOCAL PILOT POLICIES FOR CARBON MARKET CONSTRUCTION

This study evaluates the effectiveness of market-driven environmental policies in fostering sustainable, low-carbon development through the lens of China’s pilot carbon market policies, launched in 2013. Utilizing data from 283 prefecture-level cities from 2007 to 2019, we apply a difference-in-differences methodology to explore the Convergence of Carbon Shadow Price (CSP) and to assess potential spatial spillover effects. Our findings robustly demonstrate that the pilot carbon market policies significantly foster the CSP across pilot cities. This convergence is particularly pronounced in eastern regions and major cities, facilitated by advanced technological integration. Furthermore, our results reveal adverse spatial spillovers, as nearby non-pilot areas suffer competitive disadvantages, akin to the beggar-thy-neighbor effect. The study also illustrates that industrial agglomeration affects CSP in a U-shaped manner, but synergistic agglomerations of manufacturing and service sectors enhance regulatory impacts significantly.