Summary:
The report of the 20th National Congress of the Communist Party of China explicitly stated that it is necessary to “improve the market-oriented allocation system for resources and environmental factors”. Under the climate governance targets of carbon peaking and carbon neutrality, establishing the status of carbon emissions rights as a production factor and strengthening the construction of the carbon market is crucial for guiding the green-oriented resource allocation in the financial market and promoting the green transformation of economic and social development. The carbon emissios trading regulation strengthens the connection between carbon emissions, low-carbon transition capabilities and corgorate value creation, while also increasing the transition risks for carbon-intensive enterprises. Consequently, investors may incorporate carbon risk into the assessments of issuers' credit risk, and require higher risk premiums of carbon-regulated firms. This study investigates how carbon emissions trading regulation affects corporate bond financing costs based on the quasi-natural experiment of China's carbon emissions trading pilots. Based on the staggered difference-in-differences(DID) approach, we find a significant increase in credit spreads of bond issuers subject to carbon emissions trading regulation, indicating a carbon premium in the bond market. Mechanism analyses support the coexistence of a credit risk channel and a risk assessment uncertainty channel, suggesting that the construction of carbon market not only raises default risks but also increases the difficulty in risk assessment, leading investors to require excessive risk premium. Issuers with stronger credit quality and greater pollution reduction and carbon mitigation capabilities can significantly mitigate the pricing effect of carbon emission trading regulation. Additionally, this pricing effect is more pronounced for bonds with longer maturities or during periods of high carbon price volatility. Further analyses show that low-carbon collaborative governance in aspects such as local government environmental regulation, public environmental awareness, and global impact investment initiatives can amplify the pricing effect of carbon risks. Moreover,the carbon emissions trading regulation drives the green orientation of the bond market through market-based mechanisms: it raises the financing costs for carbon-intensive firms while lowering financing costs for green initiatives. Carbon prices, as a key signal for carbon risk exposure of regulated firms, significantly increase their credit spreads. The main findings remain robust after addressing endogeneity concerns and conducting a set of robustness tests. We also exclude the alternative explanations of financing demand or the policy compliance behavior of financial institutions. Our study mainly contribute to three strands of literature. First, this study supplements empirical evidence on the economic consequences of carbon emissions trading regulation on credit spreads, validating its green-oriented function. We find that carbon emissions trading regulation plays a significant signaling and incentivizing role in differentiating financing costs between high-carbon and low-carbon firms in financial markets. Second, we supplement the pricing of climate risk, particularly carbon transition risk. From an institutional perspective based on China's carbon emissions trading pilots, we characterize carbon risk and support the carbon premium through two channels: increased credit risk and greater uncertainty in risk assessment. Third, we reveal a significant positive impact of carbon pricing on bond credit spreads, providing micro-level empirical evidence on the spillover effects of carbon price volatility on other financial markets. We provide valuable insights for China's carbon emissions trading market construction and the high-quality development of green economy and society. First, governments need to send clear policy signals supporting green transition while establishing market-based carbon trading mechanisms, fully leveraging the price discovery function of carbon markets. Second, firms should proactively enhance carbon risk management and green transition capabilities, seize low-carbon development opportunities, and subsequently gain financial support from environmental-friendly investors. Third, investors are called upon to strengthen investment risk management related to carbon factors while responding to sustainable investment initiatives, thereby directing capital flows toward low-carbon and environmentally friendly sectors.
温慧愉, 高昊宇. 碳交易管控的债券定价效应——来自中国碳排放权交易试点的经验证据[J]. 金融研究, 2025, 541(7): 149-167.
WEN Huiyu, GAO Haoyu. The Pricing Effect of the Carbon Emissions Trading Regulation in Bond Financing: Evidence from the Carbon Emissions Trading Pilots in China. Journal of Financial Research, 2025, 541(7): 149-167.
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