Environmental tone and carbon market behavior: Understanding market dynamics through corporate environmental attitudes in China

Environmental awareness and attitudes are critical for carbon neutrality and emission reduction, yet they often receive inadequate attention. This study addresses this by analyzing the environmental tone in MD&A reports of Chinese listed energy supply companies from 2000 to 2022 and assessing its impact on carbon emission allowance (CEA) price return and volatility, through regime heterogeneous autoregressive regression (regime-HAR) model with alternative models to confirm robustness, and discussing the related mechanisms. Our findings reveal that a positive environmental tone drives higher CEA returns and volatility while reducing autocorrelations, largely due to increased market participation during such periods. Additionally, rising CEA prices reinforce future positive environmental tones among companies. The positive tone accelerates environmental fees while hindering green investments. In addition, the environmental tone also signals regulatory compliance, policy, and investor expectations. Through these channels, environmental tone in general reduces local district air pollution. We also identify a negative relationship between government green subsidies and environmental tone, probably due to the moral hazard of companies exploiting subsidies. This study provides fresh evidence on how environmental attitudes shape key environmental variables and offers valuable insights for policymakers.