The Impact of Carbon Market Trading Prices on Corporate Green Innovation

Abstract This study investigates the impact of carbon market prices on corporate market competition and green technological innovation in high-carbon industries in China. We develop a game-theoretic model to analyze the effects of carbon emission restrictions on enterprises and their market competition, measured by the Herfindahl-Hirschman Index (HHI). Using data from A-share listed companies in eight major regional carbon markets from 2013 to 2021, the results indicate that rising carbon prices intensify market competition by promoting substantive green technological innovation, which reduces firms’ reliance on carbon emission quotas and enhances their competitive advantage. Furthermore, we identify a threshold effect where corporate innovation capabilities significantly influence the relationship between carbon prices and market competition. Enterprises with higher innovation capabilities respond more effectively to carbon pricing, increasing their investment in green innovation. Heterogeneity tests reveal that the impact of carbon pricing is more pronounced in state-owned enterprises and firms with lower environmental responsibility scores. These findings provide valuable insights into the mechanisms of carbon market policies and their role in fostering green economic transitions. The main contributions of this research include the development of a novel game-theoretic model to examine the mechanism driving these dynamics and the identification of a threshold effect of carbon pricing, providing valuable insights into the role of carbon market policies in promoting a green economic transition.