Carbon Pricing Induces Innovation: Evidence from China's Regional Carbon Market Pilots

Jingbo Cui · Junjie Zhang · Yang Zheng

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Climate Change Policy and Economics Environmental Sustainability in Business Energy, Environment, Economic Growth

Abstract

China has launched seven regional pilots of emission trading scheme (ETS) to limit its carbon emissions. Taking advantage of the variations in the regional ETS pilots across regions and sectors and over time, we employ a difference-in-difference-indifferences (DDD) approach to evaluate the effect of ETS on low-carbon innovation at the firm level. Using patent application data of publicly-listed firms in China between 2003 and 2015, we find that the ETS pilots induced innovation in low-carbon technologies. The more active pilots—measured by carbon price and turnover rate of allowance trading—are associated with more intense low-carbon innovation.

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2014Environmental Policy and Directed Technological Change: Evidence from the European Carbon Market 2016Eco-innovation, sustainable supply chains and environmental performance in European industries 1 1We gratefully acknowledge the support by the European Union's Horizon 2020 research and innovation programme under grant agreement No. 649186 – ISIGrowth. The comments and suggestions by three anonymous referees are also acknowledged. The usual disclaimers apply.

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