Can Market-Based Environmental Regulation Improve Urban Energy Efficiency for Sustainable Development?—Evidence from China’s Carbon Emissions Trading Pilots

Improving energy efficiency is essential for easing resource and environmental constraints and advancing sustainable development. Carbon emissions trading influences urban energy use through carbon pricing, but how it affects urban energy efficiency remains insufficiently understood. Using panel data for 278 Chinese cities from 2006 to 2023, this study evaluates the effects of China’s carbon emissions trading pilots with a staggered difference-in-differences design. The results show that the pilots significantly improve urban energy efficiency, and this finding remains robust across multiple identification tests and robustness checks. Mechanism tests indicate that the pilots promote green technological innovation and digital transformation while reducing capital and labor misallocation. Heterogeneity analyses reveal stronger effects in cities with tighter credit constraints, more stringent environmental regulation, and lower energy consumption elasticity. Further analyses indicate that the pilots promote economic growth and strengthen urban economic growth momentum. Overall, carbon emissions trading improves energy efficiency while enhancing urban economic performance. From an urban energy-efficiency perspective, this study clarifies the role of carbon emissions trading in advancing sustainable development and provides empirical evidence for refining carbon markets and promoting green, low-carbon urban development.