How does energy quota trading affect the corporate pollution gap? Evidence from China

Zhaoxuan Qiu, Jincheng Li, Bei Liu, Meilin Jin and Jinmin Wang

Economic Modelling, 2025, vol. 146, issue C

Abstract: Existing study lacks discussion on how market mechanism can reduce pollution gap among firms. We estimate the average effect of energy quota trading (EQT) on pollution gap among Chinese A-share listed firms. Generally, we find that EQT can significantly narrow the pollution gap between energy-intensive and energy-saving firms by increasing both compliance costs and market incentives, economically forcing energy-intensive firms to catch up with the green technology progresses of the energy-saving firms. Mechanism tests show that green innovation and financial accessibility can amplify the effect of EQT by providing the technology and funding supports for energy-intensive firms, alleviating innovation crowding out effect caused by EQT costs. Moreover, policy synergy analysis indicates that government attention can further reinforce the premature EQT market by introducing mandatory regulations to prevent market failure. This paper provides a new perspective for overall pollution control by narrowing pollution gap with effective market allocation.

Keywords: Pollution gap; Energy quota trading; Market-government synergy (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:146:y:2025:i:c:s0264999325000203

DOI: 10.1016/j.econmod.2025.107025

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