Can carbon emission trading policies promote the withdrawal of government subsidies and the green development of enterprises? Empirical evidence from China’s A-share market

Yunhui Wang and Rong Zhou ()
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Yunhui Wang: Sichuan University
Rong Zhou: Tibet University

Palgrave Communications, 2024, vol. 11, issue 1, 1-16

Abstract: Abstract Government subsidies have been shown to be effective in stimulating green innovation within enterprises. However, it is still uncertain whether this trend of increased green innovation can be sustained as subsidies are gradually withdrawn. This issue holds significant importance, as it directly impacts the realization of the goals set by the emission trading scheme (ETS) policy. This study confirms that utilizing market mechanisms in environmental regulation to address externalities can result in a mutually beneficial outcome. It evaluates the dual objectives of the ETS, which aims to discourage firms from relying on government subsidies and enhance green innovation performance, utilizing the difference-in-differences method. The analysis of the mechanism shows that the ETS pilot policy triggers “top-by-top competition” in green innovation, fostering the emergence of a “survival of the fittest” paradigm among high energy-consuming enterprises. The concealment effect of increased operating costs and the mediating effect of increased green R&D investment serve as primary triggering mechanisms. Subsequent research shows that these results are more pronounced for enterprises that are upstream in the industrial chain, private enterprises, and enterprises with a strong dependence on external financing. These results provide empirical support for the impact of ETS pilot policy implementation and have policy and practical implications for the development of the carbon allowance trading market.

Date: 2024
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DOI: 10.1057/s41599-024-04255-z

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