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Transformative Influence of Emissions Trading Schemes on Corporate Investments: Insights from the People’s Republic of China

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  • NGUYEN HANH LUU

    (VNU University of Economics and Business, Vietnam National University (VNU), Ha Noi, Viet Nam)

  • DINH TRUNG NGUYEN

    (VNU University of Economics and Business, Vietnam National University (VNU), Ha Noi, Viet Nam)

  • DAO LE TRANG ANH

    (Business School, RMIT University Viet Nam, Ha Noi, Viet Nam)

  • UYEN NGOC PHUNG

    (VNU University of Economics and Business, Vietnam National University (VNU), Ha Noi, Viet Nam)

Abstract

This paper examines whether and how the emissions trading schemes (ETS) pilot program could influence the capital expenditures of firms in the People’s Republic of China (PRC). We use the ETS pilot in the PRC as a quasinatural experiment and obtain a comprehensive dataset of 28,213 firm–year observations, covering 3,557 listed Chinese firms observed annually between 2010 and 2022. We use difference-in-differences regressions to examine the impacts of the ETS pilot on the capital investments of firms. We document that the ETS pilot could motivate firms to increase their capital investments. This finding holds in various robustness and sensitivity checks, including dynamic timing tests, placebo tests, and subsample analyses that exclude outliers. Importantly, we further document that innovative firms increase capital expenditures more following the ETS, whereas noninnovative firms do not increase capital investments after the ETS pilot. These findings suggest that the ETS could play a pivotal role in advancing the PRC’s economic restructuring efforts.

Suggested Citation

  • Nguyen Hanh Luu & Dinh Trung Nguyen & Dao Le Trang Anh & Uyen Ngoc Phung, 2025. "Transformative Influence of Emissions Trading Schemes on Corporate Investments: Insights from the People’s Republic of China," Asian Development Review (ADR), World Scientific Publishing Co. Pte. Ltd., vol. 42(03), pages 29-50, September.
    • Handle: RePEc:wsi:adrxxx:v:42:y:2025:i:03:n:s0116110525500180
    DOI: 10.1142/S0116110525500180
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    JEL classification:

    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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