Is China's carbon neutrality commitment truly credible? Evidence from a natural experiment

The credibility of China's carbon neutrality commitment is an interesting and controversial topic. We investigate this issue using an exogenous policy experiment in 2021, in which the Chinese government surprisingly accelerated the pace of action to meet its pledge. We find that domestic investors perceive China's carbon emission commitment as credible by responding sharply to the possible enhanced energy control policies in China due to its pledge. Our evidence also suggests that investors' concerns regarding escalating policies drive their reactions. Our evidence contributes to the discussion on perceived credibility and investor reactions to policy announcements.