Can Carbon Emissions Trading Policies Promote Both the Quantity and Quality of Urban Green Technological Innovation? Evidence from China

Kaiti Zou (), Yu Hu and Siwen Wu
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Kaiti Zou: School of Management, Wuhan University of Technology, Wuhan 430070, China
Yu Hu: School of Management, Wuhan University of Technology, Wuhan 430070, China
Siwen Wu: School of Management, Wuhan University of Technology, Wuhan 430070, China

Sustainability, 2025, vol. 17, issue 2, 1-22

Abstract: Under the “dual carbon” goals, China’s green development faces the challenge of innovating amid a “lightweight and heavy-duty” dilemma, necessitating the simultaneous improvement in both the quantity and quality of green technological innovation. Based on panel data from 285 cities in mainland China between 2006 and 2020, this paper investigates the policy effect of carbon emission trading pilot programs on urban green technological innovation from the dual perspectives of innovation quantity and quality, using a difference-in-differences (DID) model. This study found that implementing carbon trading policies significantly increased both the quantity and quality of green technological innovation in pilot cities, and these results remain robust after a series of tests. The mechanism analysis indicated that the policy’s promoting effect primarily operates through three channels: decarbonizing industrial structure, increasing R&D investment, and enhancing government attention to environmental issues, which together reshape the urban innovation ecosystem. Further analysis revealed that the policy effect is more pronounced in western regions, cities with low enterprise density, and areas designated as “two control zones”. This paper enriches the theoretical understanding of market-based environmental regulation and technological innovation and provides new micro-level evidence for deepening carbon market policies.

Keywords: market-based environmental policy; green technological innovation; innovation quantity; innovation quality; China (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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