Carbon reduction triggered by shocks from environmental protection tax: evidence from China

This study examines the synergistic effects of introducing the Environmental Protection Tax (EPT) in curbing carbon emissions from the micro perspective, going further to analyse its impact channels. Prior research has predominantly concentrated on the macro-level analysis, so it makes this investigation a pioneering effort to comprehend its effects at the micro perspective. This study examines data from Chinese A-listed firms spanning 2011–2020, and uses a difference-in-differences (DID) model to evaluate the influence of the EPT on the carbon emissions of heavily polluting firms. The findings demonstrate a significant reduction in carbon emissions among heavy polluters after the implementation of the EPT, which can be achieved by promoting green transformation of firms. Moreover, examining the economic mechanisms reveals that the impact of EPT on carbon emissions is moderated by scale, technology and competition effects. Furthermore, heterogeneity analysis reveals that state-owned enterprises, enterprises located in medium-tax areas and enterprises in areas with increased tax rates are particularly affected by EPT. This study provides a clearer picture of the mechanism by which EPT is effective in reducing carbon emissions from heavy polluters and sheds light on the factors driving the achievement of carbon reduction goals.