Carbon-abatement policies, investment preferences, and directed technological change: Evidence from China

Abstract

Low-carbon technology innovation is considered to be one of the most effective remedial measures for reducing climate change. Based on panel data from 30 provinces in China which were collected firms in operation between 1999 and 2016, this paper used a difference-in-differences (DID) approach to assess whether China's current carbon-abatement policies (i.e. energy-saving goals (ESGs), new energy subsidies (NESs), and carbon emission trading schemes (ETSs)) can direct innovation activities towards low-carbon technologies; then, this paper analyzed the channels involved from the perspective of investment preferences. In terms of policy-induced effects, the contributions of both ESGs and NESs policies were discovered to be relatively stable in the 11th five-year period (FYP) (2006–2010), but weaker in the following 12th FYP, and the ETSs’ effect on innovation was found to be not significant. In particular, the estimates for policy coordination were not significant, and the innovation-inducing effects of NESs were moderated by market performance. For the analysis of channels, only administrative regulation had a reinforcing effect on the propensity to pursue technological investment. As enforcement increases, the innovation influence from technology investment preferences (TIPs) has also changed: it is distinct, and even opposite, on each side of the threshold.