Carbon trading mechanisms and government investment policies impact sustainable economic growth and a green environment

Carbon trading mechanisms and government investment policies impact sustainable economic growth and a green environment | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Article Carbon trading mechanisms and government investment policies impact sustainable economic growth and a green environment Fang Hu, Yubo Li, Thomas Li-Ping Tang This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-6109570/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract Within the constraints of Carbon Peaking and Carbon Neutrality Goals, China must intricately balance between carbon emissions and economic growth. The market regulation mechanisms of the carbon emissions trading scheme and the macro-control mechanisms of local government investment robustly impact carbon emissions (in kilotons, kt) and intensity of carbon emissions (in metric tons per million GDP, t/million). Economic growth varies greatly across various regions in China. We apply the Dynamic Stochastic General Equilibrium (DSGE) model to analyze the dynamics of economic growth in different carbon trading schemes across the developed eastern regions and the underdeveloped central and western regions. We incorporate the levels and the differences in economic growth across regions. Our discoveries suggest that first, when regions have mutually independent carbon trading markets, the increase in carbon emissions is higher in underdeveloped regions, with an increase in local economic growth. Second, with a unified carbon trading mechanism, the gaps in carbon emissions and economic output between developed and underdeveloped regions widen further. Developed regions have higher incremental carbon emissions and lower incentives to reduce emissions. Third, as the competition between regional governments for economic growth and carbon emission intensifies, each region’s economy significantly strengthens. Interestingly, as the government invests in the economy, the incremental carbon emissions in developed regions are significantly lower than the underdeveloped regions. Our economic model reveals a critical reference for explaining the imbalance of regional economic development in the context of China’s low-carbon emissions. JEL classifications: Q56, E60 Business and commerce/Business and management Business and commerce/Economics Social science/Environmental studies Social science/Science technology and society carbon trading mechanisms local government investment policies carbon emissions and economic growth regional differences DSGE Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-6109570","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Article","associatedPublications":[],"authors":[{"id":436449517,"identity":"baed3f44-c8ce-4ab3-8587-62bf1b27e0b2","order_by":0,"name":"Fang Hu","email":"","orcid":"","institution":"Guangxi University","correspondingAuthor":false,"prefix":"","firstName":"Fang","middleName":"","lastName":"Hu","suffix":""},{"id":436449518,"identity":"bf6488e7-295a-45d7-ad4f-11f57172f537","order_by":1,"name":"Yubo Li","email":"","orcid":"","institution":"Guangxi University","correspondingAuthor":false,"prefix":"","firstName":"Yubo","middleName":"","lastName":"Li","suffix":""},{"id":436449519,"identity":"9dc5e777-12e2-4cb1-9d77-c4b75c534ffe","order_by":2,"name":"Thomas Li-Ping Tang","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAArUlEQVRIiWNgGAWjYNCCCijNQ4xiHjYQeYZBgkQtjG2kaLGXb3728Ou8bXXyMxIYH7xtI8oWNnNj2W23JQxuJDAbziVOC4OZtCRIi0QCmzQvcVrYv0lLzrktAXQY+28itfCYSX5suC3BcCOBjZk4LcdyyqQZjt2W3HDmYbPknHNEaGFvPr5N8kfNbX759uSDH96UEaEFBJgh0cHYQKR6kNofxKsdBaNgFIyCkQgANtEv2Fqsc1UAAAAASUVORK5CYII=","orcid":"","institution":"Middle Tennessee State University","correspondingAuthor":true,"prefix":"","firstName":"Thomas","middleName":"Li-Ping","lastName":"Tang","suffix":""}],"badges":[],"createdAt":"2025-02-26 04:08:13","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-6109570/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-6109570/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":95227105,"identity":"6c03de1a-5d76-4073-80d9-a32cbf8a4aff","added_by":"auto","created_at":"2025-11-05 16:32:06","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":1159667,"visible":true,"origin":"","legend":"","description":"","filename":"HSSC2025NoAuthorCarbontradingmechanism.pdf","url":"https://assets-eu.researchsquare.com/files/rs-6109570/v1_covered_6b1a9760-e24c-4ea3-8ebc-635d4d077dd8.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"Carbon trading mechanisms and government investment policies impact sustainable economic growth and a green environment","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"carbon trading mechanisms, local government investment policies, carbon emissions and economic growth, regional differences, DSGE","lastPublishedDoi":"10.21203/rs.3.rs-6109570/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-6109570/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eWithin the constraints of Carbon Peaking and Carbon Neutrality Goals, China must intricately balance between carbon emissions and economic growth. 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