Carbon emissions trading schemes and economic growth: New evidence on the Porter Hypothesis from 285 China's prefecture-level cities.

The Chinese government has established carbon emissions trading schemes (CETS) to cope with climate change and reduce carbon emissions. This paper uses the multi-period difference in difference (DID) model to explore the impact of CETS on cities' GDP and GDP growth rates in China based on data from 285 prefecture-level cities from 2008-2019. We find that CETS increase the level of GDP by 3.4% and the GDP growth rate by 0.004. The mechanism of increasing GDP includes promoting investment and innovation, and the mechanism of increasing the GDP growth rate includes only promoting the investment growth rate. Thus, CETS satisfy both the weak and strong versions of the Porter Hypothesis from the GDP and growth rate perspectives. In the heterogeneity analysis, we find that the impacts of CETS on cities' GDP and GDP growth rates decrease with the increase of the corresponding dependent variable. In the spatial spillover analysis, we find that the establishment of CETS has a positive spillover effect on the GDP of cities around 50 km and 150 km, and a negative spillover effect on the GDP of cities around 200 km, but there is no spatial spillover effect on the GDP growth rate.