How do low-carbon city pilots affect carbon emissions? Staggered difference in difference evidence from Chinese firms

We employ firm-level tax survey data and a staggered difference-in-differences to evaluate how China’s low-carbon city pilots (LCCP) affects CO2 emissions. Results show a 30% reduction in emissions and a 36% improvement in energy efficiency. The LCCP highly targeted high-emission and low-efficiency firms, reducing CO2 emissions by 79%, and increased loans only to high-carbon and low-efficiency, state-owned and collective, and small firms. Our results indicate that the decline in emissions cannot be solely attributed to financial incentives, the environmental regulations also played a role in facilitating firms’ green transition. The findings provide recommendations for other developing countries aiming to lower their CO2 emissions.