The spatial spillover effect of carbon emission trading scheme on green innovation in China’s cities

Jingru Xu (), Xiangjing Tong () and Baochen Yang ()
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Jingru Xu: Tianjin University
Xiangjing Tong: Tianjin University
Baochen Yang: Tianjin University

The Annals of Regional Science, 2024, vol. 73, issue 2, No 7, 639-669

Abstract: Abstract The interactive behaviors, such as competition and learning between local and neighboring cities, can lead to spatial spillover effects in policy implementation. Estimating the direct, indirect, and total effects of the carbon emission trading scheme (CETS) on green innovation is crucial to clarify its role and mechanisms. This paper applies the spatial difference-in-differences model to estimate these effects using data from 278 cities in China from 2009 to 2019. The results demonstrate that the CETS implementation catalyzes green innovation in pilot cities, which supports the Porter hypothesis. However, it has a negative impact on green innovation in neighboring cities of pilot cities, with this negative impact diminishing as distance increases. Notably, the total effect of the CETS is significantly negative, indicating that the CETS’s average impact on green innovation in all cities is negative. Mechanism analysis reveals that the direct and indirect effects of the CETS on green innovation are strengthened in cities with higher levels of financial development, lower financial pressure, and easier economic growth targets. Notably, in cities with high-level industrial structures, the CETS not only enhances its contribution to green innovation but also mitigates its negative impact on neighboring cities. Furthermore, this paper explores the heterogeneous effects of the CETS from the perspective of its implementation measures.

Keywords: CETS; Green innovation; Spatial DID; Porter hypothesis; Siphon effect (search for similar items in EconPapers)
JEL-codes: C31 C52 Q55 Q58 R58 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s00168-024-01285-y

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