The impact of trans-provincial watershed eco-compensation policy on carbon emissions: Evidence from China.

To manage transboundary pollution, China has promoted trans-provincial watershed eco-compensation (WEC), which is a market-oriented policy that adjusts ecological and economic interests between upstream and downstream areas and promotes regional green and low-carbon transformation. Hence, a reasonable evaluation of the carbon emission reduction effect of WEC is of great value for achieving green transformation. Using data from Chinese counties between 2003 and 2020, we consider 11 trans-provincial WEC agreements and evaluate their influence on carbon emissions. We find that trans-provincial WEC policies reduce water pollution emissions and significantly lower carbon emission levels. Mechanism tests show that the policy reduces carbon emissions by limiting polluting industrial development and stimulating low-carbon technological innovations. Moreover, this policy improves regional low-carbon economic development, and there are significant heterogeneity effects of the WEC in different regions and compensation modes. This research provides new insights for transitional countries to design green transformation policies. [ABSTRACT FROM AUTHOR]