Does Market-Based Environmental Regulatory Policy Improve Corporate Environmental Performance? Evidence from Carbon Emission Trading in China

Nan Li (), Huilin Zhang, Xiangyan Zhang and Xin Xie ()
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Nan Li: Business School, Shandong Normal University, Jinan 250014, China
Huilin Zhang: Business School, Shandong Normal University, Jinan 250014, China
Xiangyan Zhang: Business College, Liaoning University, Shenyang 110036, China
Xin Xie: College of Business and Technology, East Tennessee State University, Johnson City, TN 37614, USA

Sustainability, 2025, vol. 17, issue 2, 1-26

Abstract: The carbon emissions trading (CET) policy is a crucial market-based environmental regulatory policy for managing corporate carbon emissions, thereby assisting China in achieving its carbon peak and carbon neutrality goals. This study examines whether such a policy can boost corporate environmental performance. Based on China’s CET pilot as a quasi-natural experiment, this paper employs the difference-in-differences method and difference-in-difference-in-differences method to analyze the data of listed companies in the pilot regions from 2010 to 2020. Findings show that the policy of CET has a significant positive influence on firms’ environmental performance. Notably, while high-pollution companies benefit substantially, the effect is relatively weaker compared to others. Mechanism analysis shows that the policy drives improvements through enhanced environmental management and green innovation, and government environmental subsidies promote the effect of CET on environmental performance. In addition, the impact is more pronounced in state-owned, large-scale, and power industry companies; companies in regions with strong environmental regulations; and with high executive green awareness. These findings provide some insights for refining China’s CET framework and enhancing environmental outcomes.

Keywords: environmental performance; carbon emission trading; environmental management; green innovation; government environmental subsidy (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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