Market tools for achieving carbon unlocking: Is China's energy-consumption trading policy effective?

In the context of the current shift from "dual control" of energy consumption to "dual control" of carbon emissions, formulating reasonable energy policies is crucial for breaking free from a high-carbon development path and promoting a transition to low-carbon economy. However, despite the energy trading system being an important institutional arrangement in China's energy market reform, research remains scarce regarding its effectiveness in reducing dependence on high-carbon energy and industries formed in the economic development, or in mitigating urban carbon lock-in. By applying the difference-in-differences method to the panel data of 283 cities in China, this paper empirically examines the impact characteristics and mechanisms of energy rights trading on urban carbon lock-in. Empirical results confirm that this energy trading system inhibits urban carbon unlock-in and leads low-carbon economy development. Notably, the optimization of energy production, allocation, and utilization is the main pathway for reducing carbon lock-in through the energy rights policy, with fossil energy prices playing an effective regulatory role. Additionally, the effect of pilot policy is relatively stronger in resource-based cities, cities with low energy market segmentation, and those with weak climate policy uncertainty. Moreover, while policy implementation can curb carbon lock-in in the region, it may have the opposite effect on neighboring regions.