Introduction Market-based instruments (MBIs) play an increasingly important role in environmental governance, yet their broader effects beyond carbon mitigation remain insufficiently understood. This study examines whether China’s carbon emissions trading system (CETS) reduces firms’ air pollutant emissions. Methods We construct a firm-level panel by matching the China Industrial Enterprise Database with the China Industrial Enterprise Pollution Database for 1998–2014 and link these data to city-level information on CETS pilot implementation. Using a staggered difference-in-differences design, together with robustness checks including PSM-DID and placebo tests, we estimate the effect of CETS on firm-level air pollutant emissions. Results The results show that CETS significantly reduces firms’ air pollutant emissions by 11.02% on average. The reductions are particularly pronounced for sulfur dioxide (−17.93%), nitrogen oxides (−10.18%), and dust (−11.2%). Mechanism analysis indicates that the effect operates primarily through technological innovation, and heterogeneity analysis shows stronger effects among large enterprises, firms in eastern regions, firms with lower debt ratios, and highly polluting industries. Discussion These findings extend the understanding of MBIs beyond carbon mitigation by documenting co-benefits for conventional air pollution control in the world’s largest developing economy. The study also provides policy-relevant evidence for the design of emissions trading schemes in other developing economies.
Ji et al. (Wed,) studied this question.