Fixed asset changes with carbon regulation : The cases of China

Carbon regulation might threaten corporate competitiveness and thus guide their production and investment behaviours. Using the difference-in-differences (DID) model, we analyze the impact of China's carbon emission trading (CET) pilots on the fixed asset and its investment. The main findings are as follows: (1) CET reduces the fixed assets value and investment of regulated companies. (2) The decline in the fixed asset and its investment represents more significantly in the economically developed areas, pilots with grandfathering allocation, energy and manufacturing industries, and state-owned enterprises. (3) Potential influence channel estimation indicates that the fixed-asset investment decreases through investment diversion, rather than operation transfer. (4) CET reduces the over-investment in the fixed assets of regulated companies and improves their fixed-asset investment efficiency. This study supplements the literature on carbon regulation and corporate behaviours, potentially contributing to the next stage of climate governance and global decarbonization.