Abstract
ABSTRACTThis paper estimates the potential influence of China's future nationwide carbon market on clean technology innovation. To overcome data limitation issues, the energy price is adopted as a proxy for the carbon price to estimate its impact on clean innovation and R&D. Then, a counter-factual method is introduced in which the potential carbon price is mapped onto the equivalent percentage change of energy price by sector. According to our results, the carbon market shows both a redirection and a crowding-out effect on technology innovation, with the former overwhelming the latter. If the future nationwide carbon market yields a carbon price of 50 Yuan, our findings estimate that it would result in an increase in the quantity and proportion of clean invention patents in ETS-covered sectors of 2.2% and 3%, respectively, and in an increase in the quantity and proportion of clean utility patents of 3.6% and 1.4% respectively. However, the effect on overall R&D is negative, indicating that carbon costs might crowd out some R&D expenditures, but in a limited manner. Generally, the carbon market in China is expected to help redirect technology innovation onto a cleaner path.Key policy insightsChina's future ETS would help redirect technology innovation onto a cleaner path.Maintaining a reasonable carbon price is critical to promote clean innovation.A tightened cap on the ETS system would help to maintain such a reasonable carbon price.
Highlights
In 2017, China is expected to launch a nationwide carbon Emissions Trading System (ETS)
The empirical results of the Induced Technical Change (ITC) model and the Porter hypothesis model are reported in Tables 3 and 4, respectively
The sectoral heterogeneity mapping relationship between carbon price and energy price According to Equations (5) and (6), the equivalent percentage change in energy price caused by the one carbon price unit (1 Yuan) will be heterogeneous among sectors
Summary
In 2017, China is expected to launch a nationwide carbon Emissions Trading System (ETS). Despite its importance, clean technology is unlikely to achieve a socially optimal level in the absence of policy intervention This is due to the ‘dual externality’ problem (Hall & Helmers, 2013; Jaffe, Newell, & Stavins, 2005; Ley, Stucki, & Woerter, 2016), which states that both financial market support and private sector incentives for clean innovation activities are insufficient because of the high risk and low private rewards of participation.
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