The Impacts of Carbon Pricing on Firm Competitiveness: Evidence from the Regional Carbon Market Pilots in China

50 Pages Posted: 22 Mar 2021 Last revised: 19 Apr 2021

See all articles by Jingbo Cui

Jingbo Cui

Duke Kunshan University

Junjie Zhang

Duke Kunshan University; Duke University

Yang Zheng

London School of Economics and Political Science

Date Written: March 10, 2021

Abstract

We examine the impacts of China’s unconventional emission trading system (ETS), a rate-based tradable performance standard (TPS), on firm competitiveness. Our analysis takes advantage of the quasi-natural experiment created by China's regional ETS pilots and firm-level data on innovation and financial performance. We find that ETS directs firm innovation towards climate technologies, increasing low-carbon patents by 75 percent. Allowance trading and price play an instrumental role in improving the intensity and quality of innovation. Furthermore, we find no evidence that ETS harms firm profitability, which can be explained by the induced innovation helping mitigate the cost of compliance with ETS.

Keywords: Emission Trading System, Innovation, Firm Competitiveness

JEL Classification: L51, Q55, O3

Suggested Citation

Cui, Jingbo and Zhang, Junjie and Zheng, Yang, The Impacts of Carbon Pricing on Firm Competitiveness: Evidence from the Regional Carbon Market Pilots in China (March 10, 2021). Available at SSRN: https://ssrn.com/abstract=3801316 or http://dx.doi.org/10.2139/ssrn.3801316

Jingbo Cui

Duke Kunshan University ( email )

No. 8 Duke Avenue
Kunshan, Jiangsu 215316
China

Junjie Zhang (Contact Author)

Duke Kunshan University ( email )

No. 8 Duke Avenue
Kunshan, 215316
China
+86 512 36657068 (Phone)

HOME PAGE: http://junjiezhang.org

Duke University ( email )

No. 8 Duke Avenue
Kunshan, 215316
China
+86 512 36657068 (Phone)

HOME PAGE: http://junjiezhang.org

Yang Zheng

London School of Economics and Political Science ( email )

United Kingdom

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