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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Nan Li & Huilin Zhang & Xiangyan Zhang & Xin Xie, 2025. "Does Market-Based Environmental Regulatory Policy Improve Corporate Environmental Performance? Evidence from Carbon Emission Trading in China," Sustainability, MDPI, vol. 17(2), pages 1-26, January.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:2:p:623-:d:1567292
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