Towards green progress: An empirical analysis of the Chinese emission trading pilot schemes and technological innovations *

Abstract

This paper examines the impact of the carbon emissions trading scheme (ETS) on directed technological change in the context of Chinese pilot schemes. We focus on firms' heterogeneity in driving innovation and explore policy variations across pilots. Using a matched difference-indifferences design with a zero-inflated Poisson model, we find that the lowcarbon innovation is driven by firms at the intensive margin. On average, a firm files 0.16 additional low-carbon patents annually at the intensive margin. In addition, when looking across pilots, the effect on low-carbon innovation is significant in two pilots, Beijing and Shanghai. We further find that, when looking at firms with different productivity levels measured by output per worker, the pilot ETS encourages low-carbon innovation at the intensive margin but reduces entry into low-carbon innovation at the extensive margin for the more productive firms. Our results suggest that innovation inertia matters, and future policies should encourage smaller firms covered by ETS to start innovation in low-carbon technologies.

Keywords: JEL Classification: Q54, Q55, O44, O33 Directed Technical Change, Innovation, Firm heterogeneity

JEL Classification: Q54, Q55, O44, O33