Industry star or production elite: evidence from total factor productivity of Chinese electricity sector’s green transformation

China is constantly seeking rapid, high-quality growth in order to meet its carbon peaking and neutrality goals. Approximately 40% of China’s carbon emissions come from the electric power industry, which is beset by issues of poor efficiency and excessive emissions. Thus, it is essential to determine if environmental restrictions increase economic benefits total factor productivity while still preserving the environment. We use the Quasi-DID method to examine the impact of carbon emissions trading scheme on firm-level total factor productivity of electric power companies. The findings demonstrate the following: (1) carbon emissions trading scheme considerably impedes total factor productivity development; (2) the primary cause of this detrimental impact is the need for additional improvements in marketization since green innovation is still in its infancy; (3) additional study indicates that law enforcement’s heterogeneity is what affects this restriction. Our research may both enhance the Chinese carbon emissions trading scheme’s effectiveness assessment framework and point out several potential avenues for high-quality growth.