New Insights into the Pollution Control and Carbon Reduction Effects of China's Pilot Carbon Markets

Explained Variables
The dependent variable is the level of emissions and C reduction (lnpcit). Following the methodology of Ma et al. (2024) , this variable is defined as the natural logarithm of the product of the comprehensive environmental pollution index and carbon emissions. The environmental pollution index is constructed using three indicators: sulfur dioxide emissions, PM2.5 concentrations, and industrial fume and dust emissions. To synthesize these indicators into a single measure, an improved entropy-weighted Technique for Order Preference by Similarity to an Ideal Solution approach is utilized to develop an integrated environmental pollution index.
Core explanatory variables
The core explanatory variable, didit, represents the interaction term between the time dummy variable and the policy dummy variable.
Mediating Variables
eco-friendly technological advancement (Green), industrial structure upgrading (Struc), energy structure (Energy), and the relative number of enterprises (Firm). Eco-innovation is quantified using the natural log of granted environmentally oriented invention patents. The advancement of the production framework is measured through the proportion of added economic output from the service sector relative to the manufacturing sector. The energy structure is proxied by the proportion of standard coal derived from total electricity consumption and LPG supply relative to the total societal consumption of standard coal (measured in tons). The relative number of enterprises is used to capture changes in firms' investment willingness as influenced by the PCM. This is quantified as the average number of registered firms in each city over time. The detailed computational approaches for individual intermediary factors are detailed below:
"Firm=" "x" _"it" /"μ"
"x" _"it" denotes the number of above-scale industrial enterprises in the city i during year t. μ represents the average number of above-scale industrial enterprises across all cities from 2006 to 2021, serving as a benchmark to evaluate each city's enterprise quantity relative to the national mean.
Control Variables
Gdp: Logarithmic value of GDP
Fin: Ratio of the loan balance of financial institutions to regional GDP (year-end)
Ind: Ratio of industrial value added to GDP
Gov: Ratio of general government expenditure to GDP
Fdi: Ratio of actual foreign capital utilization to regional GDP