Blessing or curse? Market-driven environmental regulation and enterprises' total factor productivity: Evidence from China's carbon market pilots

This study explores the question of whether building a unified carbon market is a blessing or a curse for enterprises in China under the background of global carbon emission reduction goals. Using data on China's A-share listed enterprises and city panel data from 2008 to 2019, we evaluate the effect of China's carbon market pilots, a market-driven environmental regulation policy, on enterprises' total factor productivity (TFP). The findings indicate that the pilot policy promoted enterprises' TFP in the pilot areas by approximately 0.05 on average during the sample period. In particular, the TFP of enterprises in high‑carbon emission industries increased by an average of 0.11. This positive effect is confirmed in the robustness tests. Meanwhile, the effect also is heterogeneous for different regions and enterprises. It depends on enterprise scale, property rights, governance level, financing constraints and registration address. Additionally, the promotion effect works through three channels, including government environmental protection efforts, enterprise resource allocation optimization, and increased investment in R&D. Therefore, building a carbon market is proven to be positive for the development of enterprises. This study enriches the research on pollution control and economic growth and provides policy references for achieving carbon reduction goals.