Can carbon trading policy and local public expenditures synergize to promote carbon emission reduction in the power industry?

• Based on the quasi-natural experiment of carbon trading pilots, DID model is constructed to empirically test the carbon reduction effect of carbon trading policy in the power industry. This study also analyzes the impact of carbon price, carbon market activity, and carbon market size on carbon emission reduction in the power industry. • This study constructs the LMDI factor decomposition model, and adopts the two-stage method to decompose the influencing factors of carbon reduction in the power industry from the perspective of local public expenditure. Specifically, factors include the carbon intensity of local public expenditure (expressed by CIPE), the local public expenditure scale (expressed by ALG), the effect of public expenditure intensity on technological progress (TO), the effect of public expenditure intensity on labor input (PO), public environmental expenditure on population (PEPE), share of public environmental expenditure (EPEE), share of public science and technology expenditure (TEPE), share of public education expenditure (EEPE). • Based on the perspective of carbon trading policy and local public expenditure synergy, this study examines whether carbon trading policy and local public expenditure can synergistically promote carbon reduction in the power industry. The power industry is the largest carbon-emitting sector in China, accounting for about 40% of the country's total carbon emissions. Studying the carbon emission reduction from the perspective of the power industry has important theoretical and practical significance for formulating targeted carbon emission reduction policies. This study examines the carbon reduction effect of the carbon trading policy, local public expenditure, and the synergistic scenario of the both in the power industry of 30 provinces in China from 2010 to 2019. The study shows that: (1) The carbon trading policy significantly promotes carbon reduction in the power industry, and the longer the carbon trading policy is implemented, the stronger the inhibitory effect. The carbon price, carbon market activity, and carbon market size in the carbon market mechanism have a significant negative correlation on the carbon emissions of the power industry. (2) In the overall period from 2010 to 2019, the carbon intensity of local public expenditure (CIPE) made the largest contribution to promoting carbon reduction in the power industry, with -175.581%, while the effect of public expenditure intensity on labor input (PO) contributed the most to the suppression of carbon reduction in the power industry, with 136.930%. (3) Under the synergy effect of carbon trading policy and local public expenditure, the share of local public expenditure (ALG) and per capita GDP (PGDP) can promote carbon reduction in the power industry. Paying attention to the timing, distribution, and complementarity of policies to promote the synergy effect of carbon trading policy and local public expenditure is a major feature of realizing carbon emission reduction in the power industry, green economic development, and improving China's unified carbon market.