Effect of China's carbon market on the promotion of green technological innovation

Abstract

The carbon trading system has been identified as an effective policy for reducing carbon emissions and a crucial environmental tool for achieving the carbon neutrality target. This study employed a two-way fixed-effects model to investigate the possible impacts of China's carbon trading policy on green technological innovation in the carbon trading pilot cities. Our results indicate that the carbon trading policy considerably promotes the green technological innovations of enterprises. One million CNY increases in carbon trading turnover will increase the number of granted green invention patents by 119.4 when the city and year fixed-effects are controlled. We conducted a series of tests, such as changing the dependent variable, shortening the sample period, and testing the non-linear relationship, to support the robustness of the main findings. Moreover, our heterogeneous tests demonstrate that the effects of the carbon trading policy on green technological innovation vary across cities with different dimensions: municipalities that are directly under the central government, cities with high GDP, cities in the eastern region, and cities with high market vitality have seen higher green technological innovation effects. Finally, we recommend strategies for increasing the vitality of the carbon market, i.e., facilitating the linkage between carbon trading pilots and the national carbon market.