Abstract
Innovation in energy technology plays a critical role in the transition to net zero emissions. This study investigates the effect of a regional carbon cap-and-trade program on firms’ innovations in power generation technologies using renewable sources and fossil fuels. A difference-in-differences analysis based on matched firms from 2006 to 2016 indicates that the Tokyo–Saitama Emissions Trading System boosts innovations in renewable and fossil fuel technologies, with a greater impact on the latter. Furthermore, we find that firms innovating in both technology areas are more responsive than those only innovating in renewable technology and that a stricter regulatory scheme has a greater impact on technological innovation. These findings suggest the potential impact of a regional cap-and-trade program on green innovations.
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