The Carbon Emissions Trading Scheme and Corporate Environmental Investments: A Quasi-natural Experiment from China

Abstract

This study examines the relationship between the carbon emissions trading scheme (ETS) and corporate environmental investments. Using a panel data set of Chinese listed firms from 2010 to 2018, we find that the ETS implementation leads to a significant increase in corporate environmental investments. Furthermore, our path analysis shows that the ETS can help improve corporate environmental and financial performance through its impact on environmental investments. Finally, we find that the positive effect of the ETS is more pronounced for firms participating in carbon markets with higher liquidity, for firms facing higher regulatory pressure, and for those that are less able to pass through emissions costs to customers. Overall, the results provide evidence on the effectiveness of China’s ETS in driving environmental investments.