Slapping "green taxes" on polluters actually made it cheaper for them to borrow money by forcing them to get efficient.
SSRN · March 18, 2026 · 6432997
The Takeaway
Usually, taxes are viewed as a financial burden that makes companies less attractive to investors. This study shows that carbon taxes can trigger the 'Porter Effect,' where forced innovation makes firms so much more efficient that the market actually views them as safer and more valuable.
From the abstract
Taking China’s environmental “fee-to-tax” reform as a quasi-natural experiment, this paper employs a difference-in-differences (DID) approach to examine the impact of the green tax reform on firms’ cost of equity on a sample of A-share listed firms from 2012 to 2023. The results show that the implementation of the Environmental Protection Tax Law significantly reduced the cost of equity for heavily polluting firms. This finding remains robust after a series of robustness checks. Analyses of the