The impact and mechanism analysis of carbon markets on the economic and environmental performance of power generation enterprises under the carbon neutrality target

Abstract Understanding the impact of carbon markets on the economic and environmental performance of power generation enterprises is important for improving carbon market policies and achieving the carbon peaking and carbon neutrality goals. This paper utilizes data from power generation enterprises between 2010 and 2022 and employs a difference-in-differences model to estimate the effects of carbon market participation. We further examine heterogeneity and identify underlying mechanisms from regional, market, management, and technological perspectives. The results indicate that carbon market policies act as a “double-edged sword”: they significantly reduce carbon emissions while diminishing firms’ return on total assets. Regional analysis reveals stronger effects in economically advanced eastern provinces. On the market side, carbon trading tightens financing constraints and reduces liquidity; on the management side, it increases management expenses and boosts disclosures of internal control audits; and on the technological side, it drives higher research and development investment and patenting activity, reflecting intensified innovation under emissions pressure. These results provide a basis for future research on the long-term corporate impacts of carbon markets and offer policy recommendations for designing robust, equitable trading systems.