Does China's carbon emission trading scheme policy exacerbate financing costs for enterprises?

China's carbon emissions trading scheme (ETS) is considered a market-oriented initiative to reduce greenhouse gas (GHG) emissions and cope with climate change. Nevertheless, this initiative has intensified the financial burden on enterprises and resulted in antipathy from the participating companies. Is this troublesome in terms of companies' financial costs? To answer this question, this study investigates the influence of China's regional and national ETS policy on the financing costs of listed enterprises using the difference-in-differences approach. We discovered that China's ETS increased enterprises' financing costs by approximately 15 %. Further analysis of the mechanism of the process indicates that this occurred because the ETS policy contributed to heightened environmental protection expenditures and increased carbon market risk faced by enterprises. Moreover, we find that the greater the market risk, the higher the financing costs faced by enterprises. Our study reveals the underlying reasons that explain why creditors require increased debt financing costs for enterprises participating in the carbon market. To resolve this green financing paradox, a public-private partnership is proposed in detail.