Do carbon emission trading schemes enhance enterprise green innovation efficiency? Evidence from China's listed firms

Under the imperatives of economic improvement and environmental protection, green innovation efficiency has garnered increased global interest. This study explores the effects of China's carbon emission trading scheme (CETS) on firm green innovation efficiency (GIE) through Super-Slack Based Model Data Envelopment Analysis, the difference-in-difference-in-differences method, the mediation effect model, and the instrumental variables-two stage least square model. An empirical analysis of data from China's A-share listed corporations between 2007 and 2017 is conducted, based on the Porter hypothesis. The main results show that CETS positively impacts enterprises' GIE, indicating that weak Porter hypothesis can be observed in China. This outcome is still valid after robustness tests. Further analyses demonstrate that: (1) China's CETS enhances enterprises' GIE by encouraging green product innovation; (2) the promoting effect of China's CETS on enterprises' GIE will be significantly enhanced with the improvement of carbon market liquidity; (3) China's CETS has a significant positive impact on the GIE of small enterprises, firms with weak political relevance, and corporations that are located in regions where policy pressure is high. This study provides an evaluation of the policy effectiveness of China's CETS at a micro-level and offers statistical support and specific policy recommendations to improve the CETS.