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Emissions trading scheme's effect on enterprises' sustainable development in China: A differential game and a quasi-natural experiment

Author

Listed:
  • Zhou, Xiaoxiao
  • Zhao, Yongan
  • Chen, Dengsheng

Abstract

A differential game model, considering high and low carbon emission firms under China's Emissions Trading Scheme (ETS) context, is given to investigate the nexus between subsidy strategy and green technology innovation. Some results suggest that without ETS, firms reduce production to avoid penalties, while with ETS, a new equilibrium emerges with higher subsidies, increased production, and reduced emissions. Using data from China's A-share listed companies (2008–2019), a Difference-in-Difference (DID) model validates that ETS pilot policy has formed a carbon emissions trading market which can incentivize firms towards green technological innovation, promoting the sustainable development. In the process, government environmental subsidies play a crucial regulatory role by offering essential financial support and policy guidance for emission reduction activities. However, the effectiveness of the ETS pilot policy is influenced by the heterogeneity in the emission reduction costs, levels of marketization and different types of firms. According to the conclusions some suggestions for ETS pilot are provided.

Suggested Citation

  • Zhou, Xiaoxiao & Zhao, Yongan & Chen, Dengsheng, 2025. "Emissions trading scheme's effect on enterprises' sustainable development in China: A differential game and a quasi-natural experiment," Energy Economics, Elsevier, vol. 147(C).
    • Handle: RePEc:eee:eneeco:v:147:y:2025:i:c:s0140988325003780
    DOI: 10.1016/j.eneco.2025.108554
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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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