To launch the nationwide emission trading scheme, some provinces in China were approved to design their pilot work for emission trading scheme according to local circumstances. Shanxi Province is the only pilot area with provincial trading market for industrial soot and dust emissions. This paper investigates the effect of Shanxi Pilot emission trading scheme on industrial soot and dust emissions by using the synthetic control method. The idea behind the synthetic control approach is to construct a combination of comparison cities to approximate the emission paths that the cities in Shanxi would have experienced in the absence of the pilot emission trading scheme. We demonstrate that, following Shanxi Pilot emission trading scheme, industrial soot and dust emissions fell markedly in Taiyuan, Datong, and Linfen relative to the synthetic counterparts. The finding that emission trading scheme can help achieve emission reduction targets is shown to be robust to the reduction in the number of control units, placebo tests, and difference-in-differences estimation.
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