China's carbon emissions trading system and energy directed technical change

Abstract

Energy directed technical change is an effective means of reconciling economic growth with, not only currently available resources, but also sustainable environmental needs. Whether a carbon emissions trading system (ETS) can internalize carbon dioxide emissions costs, and thus induce energy directed technical change, is a common topic of concern among both political and academic circles. Our study aims to provide evidence for this issue by examining the impact of China's carbon ETS on the energy directed technical change. By adopting a DID estimation approach, we find that the carbon ETS can significantly promote technical change towards clean energy after empirical testing and this conclusion holds up following several robustness tests. This directed effect is realized through a price inhibition effect and a market scale expansion effect; the mechanism test suggest that the market scale expansion effect plays a larger role than the price suppression effect. Lastly, the more significant effect in both non resource-based cities and in large cities suggests that a carbon ETS exerts a heterogeneous effect on energy directed technical change. In addition, the existence of paid auctions of carbon allowances can better induce technical change in favor of clean energy than the free distribution of carbon allowances.