The impact of carbon emission trading policy on firms’ green innovation in China

Hongxin Yu, Yaohui Jiang, Zhaowen Zhang, Wen-Long Shang (), Chunjia Han and Yuanjun Zhao
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Hongxin Yu: Shanghai Business School
Yaohui Jiang: Shanghai University of Finance and Economics
Zhaowen Zhang: Shanghai University of Finance and Economics
Wen-Long Shang: Beijing University of Technology
Chunjia Han: Birkbeck, University of London
Yuanjun Zhao: Nanjing Audit University

Financial Innovation, 2022, vol. 8, issue 1, 1-24

Abstract: Abstract This study aims to examine the green innovation effect of the carbon emissions pilot policy in China. First, using the difference-in-differences method and regressions of instrumental variables using the data from Chinese listed firms, we verify that the policy promotes green innovation among regulated firms and is more pronounced among state-owned enterprises, firms in the eastern region, and those with lower financing constraints. Furthermore, this positive effect spreads downstream relative to the regulated firms through input–output linkages, but reduces green innovation to upstream firms. Accordingly, such diffusion of innovation is achieved through the price mechanism. The results necessitate the introduction of various derivatives to mobilize the market to reduce the speculative volatility of carbon prices. In addition, relevant supporting policies must be established to encourage corporate innovation to reduce the crowding-out effect owing to emission reduction and the nonmarket factors.

Keywords: Carbon emission; Carbon finance innovation; Green innovation; Environmental regulation; Differences-in-differences (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (14)

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DOI: 10.1186/s40854-022-00359-0

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