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The Effects of Carbon Emission Rights Trading Pilot Policy on Corporate Green Innovation: Evidence from PSM-DID and Policy Insights

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  • Huilu Jiang

    (School of Economics and Management, Beijing University of Technology, Beijing 100124, China
    These authors contributed equally to this work.)

  • Zhixi Liu

    (School of Political Science & Public Administration, Wuhan University, Wuhan 430072, China
    These authors contributed equally to this work.)

  • Zhenlin Chen

    (Graduate School, Lingnan University, Hong Kong, China)

Abstract

Global warming threatens sustainable human development, and carbon emission rights trading (CERT) has emerged as a key market-based tool for reducing emissions. Yet evidence on how CERT affects corporate green innovation—especially high-quality, substantive innovation—remains mixed and fragmented. Using unbalanced panel data on Chinese A-share listed firms from 2007 to 2016 and applying fixed-effect, DID, and PSM-DID models, this study examines the impact of China’s CERT pilot policy on quota-managed firms’ green innovation. The results show that the policy primarily stimulates substantive green innovation, reflected in green invention patents, with limited influence on strategic, low-novelty patents. Its effects are stronger for firms in central and western pilot regions, in non-high-tech industries, and at more mature stages of development, and differ between firms that anticipated regulation and those brought under quota management unexpectedly. Overall, the findings indicate that a well-designed carbon trading mechanism can reallocate resources to incentivize high-quality green innovation, offering micro-level support for Coasian market-based approaches to environmental externalities and informing the further development of China’s national carbon market.

Suggested Citation

  • Huilu Jiang & Zhixi Liu & Zhenlin Chen, 2026. "The Effects of Carbon Emission Rights Trading Pilot Policy on Corporate Green Innovation: Evidence from PSM-DID and Policy Insights," Sustainability, MDPI, vol. 18(3), pages 1-31, January.
    • Handle: RePEc:gam:jsusta:v:18:y:2026:i:3:p:1207-:d:1848142
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