Does the establishment of pilot-free trade zones improve urban carbon emission efficiency?

Pilot Free Trade Zones (FTZs), as core institutional platforms for global economic integration, play a pivotal role in steering urban transitions toward low-carbon development. Using a panel of 282 Chinese cities from 2006 to 2023 and a staggered difference-in-differences design, this paper identifies the causal effect of FTZ establishment on urban carbon-emission efficiency. We document four principal findings. First, FTZs generate significant and persistent improvements in carbon-emission efficiency. Second, these gains are concentrated in coastal and southern cities, early pilot zones, high-emission regions, Belt and Road Initiative nodes, and municipalities with binding energy-saving targets, reflecting the moderating role of institutional capacity, trade exposure, and policy ambition. Third, the mechanism operates primarily through green industrial restructuring, accelerated green innovation, and deepened financial intermediation. Fourth, spatial spillovers follow a nonlinear “decline–rise–decline” pattern with geographic distance, which suggests threshold effects in knowledge diffusion and institutional contagion. Critically, we also show that FTZs increase local marginal abatement costs, signaling that initial, low-cost mitigation options are being exhausted and that decarbonization is entering a more capital-intensive and technology-intensive phase. We therefore advocate for targeted, capacity-contingent FTZ expansion as a robust institutional mechanism to accelerate urban decarbonization.