Does the free trade zone strategy promote urban low-carbon transformation? Experimental evidence from China

• The free trade zone promotes the low-carbon transformation of local cities and has a positive spatial spillover effect on surrounding cities • The spatial DID model is more effective in evaluating policy effects, while the general DID model underestimates the impact of free trade zone on low-carbon transformation • The free trade zone promotes low-carbon transformation by promoting the upgrading of industrial structure, accelerating the marketization process and improving energy efficiency • The impact of different locations and batches of free trade zone on urban low-carbon transformation is heterogeneous. • The spatial spillover effect of the free trade zone on urban low-carbon transformation is spatially heterogeneous. Low-carbon economic development is seen as a crucial strategic goal for governments globally, with China being particularly challenged with unprecedented pressure to decrease emissions. Conventional macro policies such as environmental regulations hinder economic development, while promoting low-carbon transformation through Free Trade Zone (FTZ) strategy is conducive to achieving coordination between economic development and environmental improvement. Based on adequate theoretical foundation, this paper evaluates the environmental effect of the FTZ strategy by using the spatial staggered difference-in-differences method (SDID) with the data of 270 cities in China from 2007 to 2019. The findings indicate that: Firstly, the implementation of the FTZ strategy has a dual effect on the low-carbon transformation of cities. Specifically, it has a favorable impact on local cities and generates a positive spatial spillover effect on neighboring cities. To a certain extent, the general DID model tends to underestimate the policy effect of the FTZ strategy. Secondly, the FTZ strategy is capable of driving the low-carbon transformation of cities through three mechanisms: promoting the upgrading of industrial structure, accelerating the process of marketization, and enhancing the efficiency of energy. Thirdly, the impact of different locations and batches of FTZ on urban low-carbon transformation is heterogeneous. Fourthly, the spatial spillover effect of the FTZ strategy on urban low-carbon transformation exhibit spatial heterogeneity, with the optimal policy spillover radius being approximately 50-150 km. This paper seeks to elucidate the issue of China's low-carbon transformation development by examining the impact of FTZ strategy and providing insights into the path of low-carbon transformation development. The findings of this paper are expected to contribute to the alleviation of international pressure on China to reduce emissions and provide effective reference for other countries to promote low-carbon transition.