Can the carbon emission trading scheme promote corporate environmental protection investment in China?

Since 2013, a pilot market of carbon emission trading scheme (ETS) has operated in China, with results showing a reduction in the carbon intensity of the economy. How does ETS affect enterprises' environmental protection behaviors? We conducted a quasinatural experiment by using A-share-listed companies from 2010 to 2019 as research samples and matching them using the propensity score matching method. The difference in differences model was then used to empirically assess the effect and influencing mechanism of the ETS on corporate environmental investment. Finally, the robustness and heterogeneity of the empirical results were checked. ETS seems to have significantly increased the levels of capitalized and expense-based environmental protection investment. Among them, low-carbon technological innovation plays an intermediary role in the impact of ETS on capitalized environmental protection investment. State-owned enterprises preferred capitalized environmental protection investment, whereas private enterprises preferred expense-based environmental protection investment. Moreover, having a political connection could compromise the role of ETS in promoting environmental protection investment. Our study provides some suggestions, such as accelerating the rollout of low-carbon technologies, increasing financial support for private enterprises, establishing an official reputation mechanism, and strengthening the transparency of carbon emission information disclosure.