Carbon market, green technology innovation and company performance in China

China recently established a carbon trading market representing an efficient, market- driven environmental regulatory approach to mitigate Carbon Dioxide (CO2) emissions. This study builds on China’s emerging carbon trading market by utilizing innovation theory and Porter’s hypothesis. It examines how carbon market mechanisms, including carbon finance, carbon price, and carbon trading policy, affect various aspects of company performance (economic and sustainability performance). It also considers the moderating role of green technology innovation, and the results are extended to China’s carbon market prospects. A mixed research approach was employed in this study. Quantitatively, Difference-in-Differences (DID) and regression models assessed impacts on eight industries from heavy-polluting sectors across various provinces, comparing 2010-2022 data between trading and non-trading pilot companies. The quantitative findings exemplify the controversial nature of market-based environmental regulation (carbon market mechanisms) and Porter’s hypothesis. The variability in results is mainly due to limitations observed in the initial pilot programs, including low carbon price and inadequate market liquidity. The national carbon market, launched in 2021, is still in its early stages, making it challenging to evaluate its long-term impacts. The quantitative research presents mixed findings on the relationship between the carbon market mechanisms, green technology innovation, and company performance. This study reveals that carbon finance, carbon price, and carbon trading policy all positively impact company performance, with green technology innovation further enhancing these relationships by significantly improving both economic and sustainable performance metrics. Qualitatively, semi-structured interviews were thematically analysed to outline opportunities and challenges as the mechanism evolves. Moreover, qualitative research has respectively analysed the political, economic, social, technological, legal, and environmental benefits, as well as the challenges, such as policy compliance costs, financing constraints, and low levels of green technology innovation, of carbon trading pilot companies and non-carbon trading pilot companies. The results of the qualitative analysis provide a multi-dimensional analysis of the development of China’s carbon market, providing a comprehensive view of carbon trading pilot and non-pilot companies. The holistic research approach is essential for governments, companies, and society. This will assist government departments in strengthening the carbon market mechanisms, guiding companies to reduce emissions, establishing a sound monitoring and reporting system, and standardizing the behaviour of heavy polluters. Furthermore, it encourages businesses to invest in green technology and engage in carbon trading. This participation will be essential to transitioning the whole economic system to a low-carbon economy and successfully achieving the dual- carbon strategy goals.