https://orcid.org/0000-0002-1888-6837
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ABSTRACT
This study examines the relationship between the carbon emissions trading scheme (ETS) and corporate environmental investments. Using a panel data set of Chinese listed firms from 2010 to 2018, we find that the ETS implementation leads to a significant increase in corporate environmental investments. Furthermore, our path analysis shows that the ETS can help improve corporate environmental and financial performance through its impact on environmental investments. Finally, we find that the positive effect of the ETS is more pronounced for firms participating in carbon markets with higher liquidity, for firms facing higher regulatory pressure, and for those that are less able to pass through emissions costs to customers. Overall, the results provide evidence on the effectiveness of China’s ETS in driving environmental investments.
Acknowledgments
The authors would like to thank the editor Prof. Paresh Kumar Narayan and the anonymous referees for their valuable comments. Siyi Liu acknowledges the research grant from the National Natural Science Foundation of China (No. 71902030). Xin Liu acknowledges the research grant from the National Natural Science Foundation of China (No. 71902033).
Disclosure Statement
No potential conflict of interest was reported by the author(s).
Funding
This work was supported by the National Natural Science Foundation of China [No. 71902030, No. 71902033, No. 71932003, No. 71790604].
Notes
1. BBC (Citation2014). China’s per capita carbon emissions overtake EU’s. Accessed September 21, 2020. https://www.bbc.com/news/science-environment-29239194
2. The State Council. Citation2011b. Notice of the State Council on the “12th five-year” work plan for controlling greenhouse gas emissions. Accessed September 15, 2020. http://www.gov.cn/xxgk/pub/govpublic/mrlm/201201/t20120113_64719.html
3. Xinhua News Agency (Citation2019). China carbon trading hits 337 mln-tonnes by June. Accessed October 11, 2020. http://www.xinhuanet.com/english/2019-07/11/c_138218392.htm
4. In the Chinese stock market, a firm is accorded “special treatment” (ST) status as a warning sign of financial distress if they report two consecutive annual losses. Firms with an ST symbol face some trading and financial restrictions. If the ST firm reports positive net income in the third year, the ST symbol can be removed. While if it continues to suffer a loss in the third year, it will be signified by a “*ST” and suspended from trading. A further loss in the following reporting period leads to delisting (Jiang and Wang Citation2008; Tang, Du, and Hou Citation2013). Here, we delete firm-years with ST or *ST symbol.
5. In 2016, the Notice on Effectively Launching the Key Work of the National Carbon Emissions Trading Market promulgated by the National Development and Reform Commission (NDRC) emphasized that the main players involved in the emissions trading market are firms within the eight industries that are the major emissions sources: petrochemical, chemical, building materials, steel, nonferrous metals, paper, power, and aviation. As our samples for the chemical industry include petrochemical, the samples mainly cover seven industries.