IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v17y2025i2p623-d1567292.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/17/2/623/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/17/2/623/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Teixidó, Jordi & Verde, Stefano F. & Nicolli, Francesco, 2019. "The impact of the EU Emissions Trading System on low-carbon technological change: The empirical evidence," Ecological Economics, Elsevier, vol. 164(C), pages 1-1.
    2. Li, Xiao-Lin & Li, Jingya & Wang, Jia & Si, Deng-Kui, 2021. "Trade policy uncertainty, political connection and government subsidy: Evidence from Chinese energy firms," Energy Economics, Elsevier, vol. 99(C).
    3. Benchora, Inessa & Galanti, Sébastien, 2024. "Verified carbon emissions and stock returns in the EU Emissions Trading System," Energy Policy, Elsevier, vol. 193(C).
    4. Hirunyawipada, Tanawat & Xiong, Guiyang, 2018. "Corporate environmental commitment and financial performance: Moderating effects of marketing and operations capabilities," Journal of Business Research, Elsevier, vol. 86(C), pages 22-31.
    5. Lei Zheng & Akira Omori & Jin Cao & Xuemeng Guo, 2023. "Environmental Regulation and Corporate Environmental Performance: Evidence from Chinese Carbon Emission Trading Pilot," Sustainability, MDPI, vol. 15(11), pages 1-18, May.
    6. Senshaw, Dereje Azemraw & Kim, Jeong Won, 2018. "Meeting conditional targets in nationally determined contributions of developing countries: Renewable energy targets and required investment of GGGI member and partner countries," Energy Policy, Elsevier, vol. 116(C), pages 433-443.
    7. Aravind, Deepa & Christmann, Petra, 2011. "Decoupling of Standard Implementation from Certification: Does Quality of ISO 14001 Implementation Affect Facilities’ Environmental Performance?," Business Ethics Quarterly, Cambridge University Press, vol. 21(1), pages 73-102, January.
    8. Zhang, Wei & Li, Guoxiang & Guo, Fanyong, 2022. "Does carbon emissions trading promote green technology innovation in China?," Applied Energy, Elsevier, vol. 315(C).
    9. Fan, Ruixin & Xiong, Xiong & Li, Youwei & Gao, Ya, 2023. "Do green bonds affect stock returns and corporate environmental performance? Evidence from China," Economics Letters, Elsevier, vol. 232(C).
    10. Kabir, Md Nurul & Rahman, Sohanur & Rahman, Md Arifur & Anwar, Mumtaheena, 2021. "Carbon emissions and default risk: International evidence from firm-level data," Economic Modelling, Elsevier, vol. 103(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yufen Zhong & Xingyuan Yao & Weiming Lin, 2025. "The Impact of Environmental Regulation on the Growth of Small and Micro Enterprises: Insights from China," Sustainability, MDPI, vol. 17(5), pages 1-24, February.
    2. Guantai Wu & Chaowei Feng & Shixian Ling, 2025. "The Synergistic Effect of the Dual Carbon Reduction Pilot on Corporate Carbon Performance: Empirical Evidence from Listed Manufacturing Companies," Sustainability, MDPI, vol. 17(10), pages 1-26, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yunqing Zhao & Debao Dai & Wei Shao & Liang Ye, 2024. "Can the Carbon Trading Policy Enhance Resource Allocation Efficiency?—An Analysis of the Synergistic Effect of Market Mechanism and Government Intervention," Sustainability, MDPI, vol. 16(22), pages 1-24, November.
    2. Weng, Zhixiong & Liu, Tingting & Wu, Yufeng & Cheng, Cuiyun, 2022. "Air quality improvement effect and future contributions of carbon trading pilot programs in China," Energy Policy, Elsevier, vol. 170(C).
    3. Yumei Guan & Chiwei Su & Tao Guan, 2025. "The Dynamic Bidirectional Causality Between Carbon Pricing and Green Technology Innovation in China: A Sub-Sample Time-Varying Approach," Sustainability, MDPI, vol. 17(12), pages 1-23, June.
    4. Wei Shao & Debao Dai & Yunqing Zhao & Liang Ye, 2024. "The Effect of Carbon Trading Pilot Policy on Resource Allocation Efficiency: A Multiple Mediating Effect Model of Development, Innovation, and Investment," Sustainability, MDPI, vol. 16(17), pages 1-22, August.
    5. Tan, Ruipeng & Cai, Qijun & Pan, Lulu, 2024. "Faking for fortune: Emissions trading schemes and corporate greenwashing in China," Energy Economics, Elsevier, vol. 130(C).
    6. Yadu Zhang & Yiteng Zhang & Zuoren Sun, 2023. "The Impact of Carbon Emission Trading Policy on Enterprise ESG Performance: Evidence from China," Sustainability, MDPI, vol. 15(10), pages 1-27, May.
    7. Wu, Qingyang, 2024. "Power play in carbon trading market: How status of executives with R&D background incentives companies’ low-carbon innovation," Energy Policy, Elsevier, vol. 188(C).
    8. Xu, Xiaofeng & Cui, Xiaodan & Chen, Xiangyu & Zhou, Yichen, 2022. "Impact of government subsidies on the innovation performance of the photovoltaic industry: Based on the moderating effect of carbon trading prices," Energy Policy, Elsevier, vol. 170(C).
    9. Gu, Tianqi & Xu, Weiping & Liang, Hua & He, Qing & Zheng, Nan, 2024. "School bus transport service strategies’ policy-making mechanism – An evolutionary game approach," Transportation Research Part A: Policy and Practice, Elsevier, vol. 182(C).
    10. Yiping Sun & Xiangyi Li & Tengyuan Zhang & Jiawei Fu, 2022. "Does Trade Policy Uncertainty Exacerbate Environmental Pollution?—Evidence from Chinese Cities," IJERPH, MDPI, vol. 19(4), pages 1-21, February.
    11. Xiaofeng Xu & Xiangyu Chen & Yi Xu & Tao Wang & Yifan Zhang, 2022. "Improving the Innovative Performance of Renewable Energy Enterprises in China: Effects of Subsidy Policy and Intellectual Property Legislation," Sustainability, MDPI, vol. 14(13), pages 1-24, July.
    12. Moliterni, Fabio, "undated". "Do Global Financial Markets Capitalise Sustainability? Evidence of a Quick Reversal," SAS: Society and Sustainability 274853, Fondazione Eni Enrico Mattei (FEEM).
    13. Xie, Xuejing & Gong, Yukai & Cheng, Le, 2025. "Managerial myopia and carbon emission: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 90(C).
    14. Joel Bothello & Ioannis Ioannou & Vlad‐Andrei Porumb & Yasemin Zengin‐Karaibrahimoglu, 2023. "CSR decoupling within business groups and the risk of perceived greenwashing," Strategic Management Journal, Wiley Blackwell, vol. 44(13), pages 3217-3251, December.
    15. Stefano Clo' & Gianluca Iannucci & Alessandro Tampieri, 2024. "Emission permits and firms' environmental responsibility," Working Papers - Economics wp2024_06.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    16. Fabio La Rosa & Sergio Paternostro & Francesca Bernini, 2023. "Corporate and regional governance antecedents of the Legality Rating of private Italian companies," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 27(1), pages 297-329, March.
    17. Lu, Shenghua & Wang, Hui, 2023. "How revolving-door recruitment makes firms stand out in land market: Evidence from China," China Economic Review, Elsevier, vol. 78(C).
    18. Wang, Weilong & Wang, Jianlong & Wu, Haitao, 2024. "The impact of energy-consuming rights trading on green total factor productivity in the context of digital economy: Evidence from listed firms in China," Energy Economics, Elsevier, vol. 131(C).
    19. Licheng Yang & Shijie Song & Chunlin Liu, 2024. "Green signals: The impact of environmental protection support policies on firms' green innovation," Business Strategy and the Environment, Wiley Blackwell, vol. 33(4), pages 3258-3278, May.
    20. Lu, Yunguo & Zhang, Lin, 2022. "National mitigation policy and the competitiveness of Chinese firms," Energy Economics, Elsevier, vol. 109(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:17:y:2025:i:2:p:623-:d:1567292. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.