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Carbon emission trading, a market-incentive environmental regulation, plays a critical role in leading China towards the carbon peaking and carbon neutrality. To improve the national carbon emission trading in China, we analyze the effects of the policy in pilot provinces and pilot A-share listed firms from 2008 to 2016. Particularly, to explore the pilot policy's environmental and financial impacts, this paper applies a difference-in-difference method. After the robustness check, the results confirm the carbon emission trading pilot's significantly positive impact at both firm- and province-level regarding carbon emission reduction. Meanwhile, corporate innovation seems to partially mediate the relationship between the policy and corporate carbon emission reduction. Plus, the policy promotes firms' market-based financial performance but such impact on accounting-based financial performance is insignificant. Ultimately, the operational mechanism of the policy is proved to be effective. In this paper, industry- and firm-level carbon emissions databases are established via environmental extended input-output table, which fill the research gap of China's firm-level carbon emissions. To ensure the reliability of results, the list of covered firms is sorted out manually in accordance with the disclosed data of seven carbon trading markets. Our results are meaningful for avoid productivity reduction and mechanism re-design in the context of the national carbon emission trading launched in 2021. Specifically, encouraging firms to further improve their productivity and competitiveness by innovation could eventually achieve a win-win situation between economic performance and environmental merits in the long run. [ABSTRACT FROM AUTHOR]

This paper focuses on whether carbon emissions trading (CET) has different impacts on the heterogeneous low-carbon innovation, and how CET affects the direction of technical change. Taking six CET pilot regions in China as research objectives, we set two types of technology as the clean and the gray with CPC-Y02 patent codes, and use the synthetic control method (SCM) in quasi-natural experiment. Moreover, this paper analyzes how CET moderates the effects of other three factors, that is, control-and-command environment regulation, foreign capital inflow and industry structure, with different innovations. The results show that the effects of CET on the direction of technical change are different across regions. CET successfully induces technical change to the clean direction and restrains the gray direction in Beijing and Shanghai, while promoting both innovations in Tianjin and Hubei, only intensifying the gray in Guangdong and Chongqing. These results indicate CET has a significant impact on both innovations, but its impact on the direction of technical change seems to be neutral, depending more on the balance between the new regulation and existing dependence on technological path in each region. Further research finds that CET amplifies the positive effect of industry structure upgrading on both kinds of innovations, but the response of the clean is more sensitive than that of the gray. Moreover, foreign capital inflow can promote the clean in the current period and inhibit the gray with lags, and the significant interaction between CET and foreign capital inflow can not be found. However, the policy mixed CET with control-and-command regulation leads to more gray innovation. The further analyses imply that CET can be a useful instrument leading to the right direction of technical change under certain backgrounds, where industry structure is upgrading, more open for foreign investment with less control-and-command regulations. [ABSTRACT FROM AUTHOR]