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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]

Emissions trading system (ETS) is a cost-effective way towards achieving the carbon neutrality goal. Based on the gaps in the research on carbon allowance allocation vis-à-vis the carbon neutrality target, this study examines how to allocate carbon allowances equitably and effectively among Chinese provinces. Different from the previous research that mainly considers responsibility, ability, and potential of equity dimensions, this paper proposes a composite indicator allocation approach based on the equity of history, demand, contribution, and guarantee, and it also employs the entropy method and expert survey method to obtain the indicator weight values in different scenarios. Results show that the carbon allowances of some provinces, such as the forest-rich province of Yunnan, vary significantly in five scenarios, but little differences are observed for some provinces, such as the high historical emissions province of Shanxi. More provinces achieve data envelopment analysis efficiency in the preferred scenario. Compared with the objective scenario, the required emission reduction in the preferred gross domestic product (GDP) scenario is 231 million tonnes less, and the emission reduction cost is 190 billion yuan less. It is suggested that the Chinese government should adopt the allocation scheme in preference for the GDP scenario. [ABSTRACT FROM AUTHOR]