Accelerating green transition in high-carbon firms: The role of carbon trading, subsidy design, and marketization

Facilitating the green transformation of firms is essential for tackling climate change and realizing the "dual carbon" goals. This study examines the effect of carbon emission trading (CET) on firms' green transformation (GT). The findings indicate that CET policy promotes the GT of high-carbon firms, mainly through industrial structure optimization, green finance support, and technological advancement. Heterogeneity analysis reveals that the policy effects are more significant in the central region, areas with stricter environmental regulations, industries such as petrochemicals, chemicals, building materials, and power, as well as in non-state-owned firms and those with lower financing constraints. Further analysis suggests that a well-designed government subsidy and the degree of marketization act as "policy levers" for the effectiveness of CET. This study contributes to accelerating the GT of high-carbon firms and offers valuable insights for policymakers to optimize subsidy design and strengthen the market-government collaborative mechanism. • Carbon emission trading promotes the green transformation of high-carbon firms. • Government subsidies and marketization can improve the effectiveness of carbon trading. • The effect of carbon trading varies across industries and firm characteristics. • Refining subsidy types can accelerate firms' green transformation.