Effect of low-carbon innovation on carbon risk: International firm-level investigation

Abstract

In our study, leveraging a comprehensive dataset spanning 25 economies from 2007 to 2020, we demonstrate the role of low-carbon innovation in mitigating carbon risk by diminishing both the total emissions and emission intensity of firms. Overall, our findings highlight the profound influence of low-carbon innovation in curtailing carbon emissions. Remarkably, compared to advanced economies, emerging ones exhibit a more pronounced trend in the benefits of low-carbon innovation. Our analysis also underscores the pivotal role of the Paris Climate Agreement in amplifying the impact of low-carbon innovation, an effect that became especially salient during the 2008 financial crisis. Furthermore, we identify a discernible mediating role of energy consumption and intensity in the nexus between low-carbon innovation and carbon risk reduction. We also elucidate the heterogeneous effects of low-carbon innovation across different industries.