Carbon Emissions Trading and Employment: Evidence from China

Using carbon emissions trading (CET) to lower carbon emissions and stabilize employment are critical components of both environmental and social sustainability. However, it remains unclear whether there is a conflict between these two objectives. Based on panel data from 267 Chinese cities spanning from 2005 to 2019, this study employs a difference-in-differences (DID) model to evaluate the impact of CET on employment. The results show that CET significantly increases employment by 16.3%. The underlying reason for this growth is that CET boosts output in regulated industries, which not only promotes employment growth in these industries, but also through industrial linkages, and drives significant growth in unregulated sectors, particularly in production and consumption services. Moreover, the study finds that the employment effect is closely related to the characteristics of CET. Higher market liquidity and trading volume amplify CET’s employment impact, while carbon prices exhibit an inverted U-shaped relationship with employment, peaking at around 30 yuan per ton. The findings indicate that CET is a promising policy tool that, if well-designed, can deliver the dual benefits of carbon reduction and job creation.