The carbon market is an important instrument for China to advance climate governance. Unlike regional environmental policies, the carbon market has a clear firm-level regulatory boundary defined by compliance lists. Many regulated firms, however, are part of large conglomerates. Through ownership networks and the internal allocation of production and technology, regulation may affect not only regulated firms but also unregulated affiliates. Meanwhile, the carbon market imposes short-term compliance pressure, whereas low-carbon R&D has a longer and riskier cycle. This mismatch may encourage firms to purchase existing technologies rather than develop new ones, or to retain technologies for compliance advantages rather than diffuse them. A deeper investigation of these issues can shed light on potential directions for improving the institutional design of China’s carbon market.

This paper manually collects the lists of firms regulated by China’s pilot carbon emissions trading markets, maps their conglomerate networks, and matches them with the 2008–2016 National Tax Survey. A two-period model developed in this paper shows that carbon-market regulation affects firm output and emissions through two channels: a cost effect caused by higher effective energy-use costs and a technology effect generated by low-carbon technology adjustment. Empirical analysis uses a DID design to test these mechanisms. The results show that the policy reduces regulated firms’ carbon emissions and carbon intensity by 24.30% and 28.57%, respectively, without significantly reducing output. For unregulated affiliates, output rises by 18.61% and carbon intensity falls by 27.61%, while emissions do not increase significantly. This indicates that emission reductions are primarily driven by technological improvement rather than output contraction, and the carbon market generates positive spillover effects within conglomerates. Mechanism testing based on low-carbon patent applications, transfers, and licenses shows that the policy promotes purchases of low-carbon technologies while suppressing low-carbon R&D and sales.

This paper makes the following contributions: First, it identifies the policy shock using actual lists of regulated firms rather than treating all firms in pilot regions as regulated, providing more credible firm-level evidence for carbon-market governance. Second, it extends the study of environmental policy spillovers beyond regional and supply-chain channels to conglomerate ownership networks, broadening the theoretical understanding of carbon-market policy externalities. Third, it shifts the analysis of low-carbon policy responses from “whether firms innovate” to “how they allocate technologies”, highlighting the importance of reconciling short-term compliance incentives with long-term R&D and technology diffusion.