Climate policy and low-carbon innovation: Evidence from low-carbon city pilots in China

Abstract

The impact of China's low-carbon city pilot (LCCP) program – a climate policy applied at the city level – on low-carbon innovation has yet to be studied. The LCCP program intends to facilitate the low-carbon transformation of several of China's cities and serve as a quasi-natural experiment to determine if city-level climate policies like this can promote low-carbon innovation. Using the entropy balancing-difference in difference (EB-DID) method, this study evaluates the impact of China's LCCP program on low-carbon innovation in China's prefecture-level cities. The results show that: (1) the LCCP program significantly promotes low-carbon innovation; (2) the LCCP program more significantly impacts innovation with higher carbon reduction potential and promotes more innovation in small- and medium-sized cities; (3) innovation environment and environmental information disclosure are essential factors affecting the LCCP program's innovation effects. The study suggests that governments can improve cities' low-carbon innovation through active climate policies at the city level and through optimizing the allocation of innovation resources. The governments should also include small- and medium-sized cities in the pilot programs. To benefit from the low-carbon innovation effect of the LCCP program, they should also focus on improving the innovation environment and environmental information disclosure practices of the pilot cities.