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

Ruijie Tian (), Li Chen () and Xiaojun Yang ()
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Ruijie Tian: Novo Nordisk
Li Chen: Tongji University
Xiaojun Yang: Xi’an Jiaotong University

Review of Economic Design, 2025, vol. 29, issue 4, No 3, 727-765

Abstract: 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-in-differences design with a zero-inflated Poisson model, we find that the low-carbon 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: Directed technical change; Innovation; Firm heterogeneity. (search for similar items in EconPapers)
JEL-codes: O33 O44 Q54 Q55 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10058-024-00372-y

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