How to design emission trading scheme to promote corporate low-carbon technological innovation: Evidence from China

Abstract

The appropriate design of the emission trading scheme (ETS) plays a crucial role in promoting companies to conduct low-carbon technological innovations. Based on a questionnaire survey, this paper examines how the design of the ETS and identified determinants have impacted corporate low-carbon technological investment decisions. The data was collected from 99 companies in the eight areas that are implementing the ETS in China. The results indicate that five attributes significantly influence the possibility of corporate investments in low-carbon technologies and thus need more attention in designing the national ETS, including allowance allocation for existing installations, compliance period, allowance allocation for new entrants, allowance banking and policy stability. From the viewpoint of the surveyed companies, the ETS that allocates allowances for existing installations based on the benchmark, has a long compliance period, allocates allowances for new entrants based on a uniform benchmark and allows companies to bank allowances could effectively encourage companies to conduct the low-carbon technological investment. The results of this study are important in light of ongoing discussions and developments of the national ETS in China.