Examining the Influence of Emission Standards on Green Innovation: A Study Across Automotive Supply Chain Entities: Firms, Suppliers, and Universities*

Abstract

As the impact of emission standards on green innovations across supply chain partners remains unclear in the research literature, we examine the effect of a set of nationwide emissions standards (introduced by the Chinese government in 2016) on green innovations across supply chain partners in the automotive industry. In addition to these nationwide standards enacted in 2016, 117 “key cities” were selected by the Chinese government in 2012 for scrutiny over their pollution prevention and control efforts. By considering different supply chain entities (automakers, suppliers, and universities) located in or associated more closely with these key cities as “treatment” samples and by viewing the standards introduced in 2016 as an “event”, we can leverage this quasiexperimental setting to identify the effect of the 2016 emission standards on the number of green patents filed by different supply chain entities (car manufacturers, suppliers, and universities). 
Our empirical analyses reveal that the introduction of the new automotive emission standards has led to an increase in green technological innovations within the automobile industry ecosystem. Surprisingly, we find that automobile manufacturers did not increase their innovation efforts following the introduction of the 2016 regulations. Interestingly, we find evidence that the regulations effectively nudged suppliers of automotive firms and universities to coordinate their investment strategies in “target areas” (battery and hybrid vs. engine technologies) in a complementary manner. These results suggest that, to reduce financial and technology risks, automotive firms rely on suppliers and universities to conduct more R&D in green innovations. Hence, regulations can strengthen inter-dependencies and foster coordinated synergies among supply chain partners, highlighting the role of regulations in driving industry-wide sustainability.

Keywords: Green innovation, patents, automobile, environmental regulations, emission standards