Market-based Environmental Policy Research Articles

Environmental Policy and Environmental R&D in the Private Sector: New Evidence on the “Narrow” Porter Hypothesis

We examine the impact of the stringency of market-based and non-market-based environmental policies on private-sector environmental R&D expenditures. We find that the stringency of market-based environmental policies has a positive and statistically significant impact on environmental R&D expenditures in the private sector. In contrast, the stringency of non-market-based environmental policies is statistically insignificant. Thus, our findings provide evidence supporting the “narrow” Porter hypothesis.

A comparative review of global environmental policies for promoting sustainable development and economic growth

This study systematically reviews and analyzes the interplay between environmental policies, sustainable development, and economic growth, with a focus on the role of technological innovation and international cooperation. Employing a combination of systematic literature review and content analysis, the research scrutinizes peer-reviewed articles, policy documents, and reports from 2014 to 2024. The methodology encompasses a structured search strategy across major databases, applying specific inclusion and exclusion criteria to ensure the relevance and comprehensiveness of the literature reviewed. Key findings reveal that both regulatory and market-based environmental policies significantly impact sustainable development and economic growth. Technological innovation emerges as a pivotal driver for achieving sustainability goals, while international agreements and cooperation play a crucial role in addressing global environmental challenges. The study identifies gaps and inefficiencies in current environmental policies, particularly in integrating economic objectives with sustainability goals. The research concludes that enhancing the synergy between environmental sustainability and economic growth necessitates a multifaceted approach, incorporating technological advancements, fostering global partnerships, and adopting integrated policy frameworks. Strategic recommendations for policymakers and stakeholders emphasize the importance of investing in green technologies, strengthening international environmental agreements, and promoting policies that balance economic development with environmental protection. This study contributes valuable insights into advancing sustainable development through effective environmental policies, highlighting the need for an integrated approach to ensure environmental sustainability and economic prosperity. Keywords: Environmental Policies, Sustainable Development, Technological Innovation, International Cooperation.

The role of financing constraints and environmental policy on green investment

Despite ambitious carbon reduction targets set by policymakers worldwide, current investments fall well short of the net-zero emissions scenario. This paper investigates the impact of financing constraints (FCs) on green investment among large, publicly listed firms across diverse sectors and countries. We find that FCs significantly reduce the propensity to undertake green investments by 2.5 percentage points. This result is even more pronounced in a difference-in-differences framework when focusing on the exogenous increase in financing costs resulting from the Great Financial Crisis of 2007/08. The study reveals further that the negative impact of FCs can be reduced by market-based environmental policies.

Innovationspolitik für die Transformation zur Klimaneutralität

Abstract Rapid deployment and developments in green innovations are crucial for achieving climate neutrality. While market-based policy instruments are the backbone of climate policy, governmental support for research and development (R&D) complements an efficient policy mix that supports green innovations at all stages of the innovation process. Nonetheless, international R&D support has declined over the last decade. In an international comparison, Japan is at the forefront of green R&D support. Germany is also a leader in R&D support, but its market-based environmental policy stringency remains low, which undermines the importance of an adequate climate policy mix.

Do market-based environmental policies encourage innovation in energy storage?

Do market-based environmental policies encourage innovation in energy storage?

The Role of Industrial Structure in the Impact of Environmental Regulation on Carbon Productivity

In the context of global climate change, China has proposed the "Carbon peaking and Carbon neutrality goals" goal of carbon emissions will reach carbon peak by 2030 and carbon neutral by 2060. As a market-based environmental regulation policy to promote greenhouse gas emission reduction, carbon emission trading policy is expected to reduce carbon emissions and improve carbon productivity, among which industrial structure plays a regulatory role in the impact of carbon emission trading policy on carbon productivity. Using the provincial data of China from 2006 to 2019, this paper evaluated the influence of carbon emission trading policy on carbon emission, taking the industrial structure as the regulating variable, studied the industrial structure in the influence of environmental regulation on carbon emission, and tested the regression results of DID model through parallel trend test, placebo test and PSM-DID model regression. After the above research process, the following conclusions are drawn: the carbon emission trading policy has a significant positive promotion effect on carbon emission reduction, and it is further concluded that the industrial structure has a significant negative regulatory effect on carbon productivity under the carbon emission trading policy.

Can China's water rights trading system promote water resources technological innovation?

Water is an important resource that supports economic development and ecological security, and water pollution and water shortage pose a major threat to human survival. Therefore, improving the utilization of water resources and establishing a water rights trading system (WRTS) have become urgent tasks for achieving the goal of sustainable socio-economic development. Water resources technology innovation (WRTI) is an important driver of accelerating the construction of ecological civilization in China. In view of this, it is worth exploring whether a WRTS, as a market-based environmental policy targeting water conservation and water use efficiency, can promote WRTI within the framework of China's national policy of resource conservation and environmental protection. To address this question, this innovative study employs a quasi-natural experiment based on the WRTS implemented in China in 2014. The study selects panel data from 30 Chinese provinces (excluding Tibet, Hong Kong, Macau, and Taiwan) spanning the period from 2010 to 2020. It empirically examines the effect of the WRTS on WRTI using the difference-in-differences method. The results of the study show that the WRTS significantly increases the level of WRTI in the pilot region. In addition, the study explores the heterogeneity of WRTI across innovation types and administrative levels within the WRTS pilot districts. The results show that the WRTS is effective in stimulating the growth of WRTI. In addition, national-level pilot districts contribute more significantly to WRTI than provincial-level pilot districts. Overall, these findings provide valuable insights into the role of a WRTS in promoting the optimal allocation of water resources and its combined contribution to water conservation and protection.

Going green with artificial intelligence: The path of technological change towards the renewable energy transition

Research background: The twin pressures of economic downturn and climate change faced by countries around the world have become more pronounced over the past decade. A renewable energy transition is believed to play a central role in mitigating the economic-climate paradox. While the architectural and computational power of artificial intelligence is particularly well suited to address the challenges of massive data processing and demand forecasting during a renewable energy transition, there is very scant empirical assessment that takes a social science perspective and explores the effects of AI development on the energy transition. Purpose of the article: This paper aims to answer two key questions: One is, how does AI software development promote or inhibit the shift of energy consumption towards renewables? The other is, under what policy interventions does AI software development have a more positive effect on promoting renewable energy consumption? Methods: We employ a dataset of 62 economies covering the period 2011–2020 to analyze the impact of AI software development on the energy transition, where possible confounders, including political and economic characteristics and time-invariant elements, are controlled using fixed-effects estimation along with specified covariates. Findings & value added: AI software development can promote the energy transition towards renewables. There is suggestive evidence that the core mechanism linking such a positive relationship tends to lie in improving innovation performance in environmental monitoring rather than in green computing. Government support for R&D in renewable energy technologies is found to be significantly beneficial for harnessing the positive impact of AI software development on the energy transition. Compared to non-market-based environmental policies, market-based environmental policies have a more significant positive moderating effect on the relationship between AI software development and energy transition.

Does energy-consuming right trading have double dividend effect on firm's economic performance and carbon emission?

Whether the market-based environmental regulation policy can achieve a win-win situation of economic growth and carbon emission reduction has always been an academic controversial topic. Taking the pilot policy of energy-consuming right trading (ECRT) of China in 2016 as a quasi-natural experiment, this paper uses the difference-in-differences (DID) method to investigate the policy impact of ECRT on the economic performance and carbon emissions of firms. An economy-environment composite index has been conducted for testing double dividend effect of ECRT. The empirical results show that ECRT can improve the economic performance and reduce carbon emissions of firms significantly. The double dividend effect is more significant in high-carbon emission firms, non-state-owned firms and prior to COVID-19 pandemic. ECRT policy has Porter innovation mechanism, in which innovation input is the main contribution of economic dividend effect and green technology innovation is the main contribution of environmental dividend effect. The conclusions of this paper provide empirical evidence and policy implications for realizing the common development of economy and environment, accelerating the process of emission reduction and building a national energy trading market.

Market-Based Environmental Policies in the Power Sector

Abstract Purpose of Review So-called Green New Deals aim to decarbonise the power sector via market-based instruments. Consequently, engineering-economic models for analysing the sustainable-energy transition have proliferated. This review categorises existing approaches and identifies areas for extending the state of the art. Recent Findings We cluster the extant literature into two groups: engineering/operational research (M1) and environmental economics (M2). While M1 focuses on the power sector’s technical and spatio-temporal aspects, M2’s emphasis is on incentives and externalities. Depending on the nature of the research question, either perspective (or both) may be suitable. Summary Since the envisaged electrification of the wider economy implies tighter coupling between formerly distinct sectors, e.g., power and heat, both M1 and M2 will have to adapt to the new paradigm in terms of methodology and application areas. Here, eliciting coordinating mechanisms, enhancing algorithms for solving hierarchical models, soft linking bottom-up and top-down models, and crafting robust environmental policy in face of uncertainty over externalities are some of the vistas for future research.

The Impact of Carbon Emission Trading Policy on Enterprise ESG Performance: Evidence from China

The carbon emission trading system profoundly impacts enterprises’ sustainable development as an important market incentive environmental regulation tool. Through data collected from Chinese A-share listed enterprises in Shanghai and Shenzhen from 2011 to 2019 and Bloomberg ESG score data, this paper empirically analyses the impact of carbon emission trading policy on enterprise ESG performance and its channel mechanism using the difference-in-difference (DID) method. Results of this study indicate that carbon emission trading policy improves enterprise ESG performance significantly, and robustness tests confirm these findings. Carbon emission trading policy can encourage enterprises to enhance their R&D investments and promote internal controls, ultimately enhancing their ESG performance. Additionally, carbon emission trading policy positively impacts ESG performance in low-carbon enterprises, enterprises where the CEO is separated from the company, enterprises with a high degree of digital transformation, and enterprises receiving high government subsidies. This paper extends our research into the economic implications of carbon emission trading policy, enriching the literature on market-based environmental regulation policies’ impact on enterprise ESG performance. With respect to governments’ use of carbon emission trading to regulate enterprises environmentally, this paper provides theoretical guidance. It has significant practical implications for improving enterprise ESG performance and sustainability.

The impact of emission charges on the quality of corporate innovation: Based on the perspective of breakthrough technological innovation

As China's longest-implemented market-based environmental regulation policy, emission charges have contributed outstandingly to improving the ecological environment and reducing firms' pollution emissions. We assess the impact of emission charges on the innovation quality of Chinese firms based on the perspective of firms' breakthrough technological innovation. By observing Chinese A-share listed firms with heavy pollution from 2011 to 2020, we find that corporate breakthrough technological innovation positively moderates the emission charges to enhance the quality of corporate innovation. Our mechanism tests suggest that emission charges and breakthrough technological innovation positively affect innovation quality by improving the means of green innovation of enterprises. In addition, heterogeneity analysis shows that emission charges and firms' breakthrough technological innovation are only effective in improving the innovation quality of state-owned firms, and the effect on the innovation quality of non-state-owned firms is not significant. Our findings suggest that the imposition of emission charges and incentives for firms to embark on breakthrough technological innovation can effectively improve the quality of innovation.

Better to grow or better to improve? Measuring environmental efficiency in OECD countries with a stochastic environmental Kuznets frontier (SEKF)

The standard approach to the Environmental Kuznets Curve (EKC) holds that as a country develops and GDP per capita grows environmental degradation initially increases but eventually it reaches a turning point where environmental degradation begins to decline. Environmental degradation takes many forms, one of them being emissions of harmful gases. According to the EKC concept, a country can reduce emissions by ‘growing’. The standard approach implicitly assumes that a country emits as little as possible for its economic development, whereas in reality, a country might emit above the best attainable level of emissions. Therefore, emissions could be reduced before and after the turning point by becoming more environmentally efficient – i.e., ‘improving’ the emissions level. This article proposes a Stochastic Environmental Kuznets Frontier (SEKF) which is estimated for CO2 emissions for OECD countries and used to benchmark each country before and after the turning point differently, thus, indicating how a country could ‘grow’ and/or ‘improve’ to reduce its CO2 emissions. Additionally, we analyse the role of the stringency of environmental policies in reducing a country's carbon inefficiency measured by the distance from the benchmark EKC and find widespread carbon inefficiencies that could be reduced by more stringent market-based environmental policies.

The Impact of China's ETS on Corporate Green Governance Based on the Perspective of Corporate ESG Performance.

To achieve China's "dual carbon" and common prosperity goals, corporate green governance is crucial. A key tool for promoting green growth is environmental legislation, particularly market-based regulation. With China's carbon emission trading as a natural experiment, we adopt the DID method to quantitatively compare the gap between ESG performance of pilot and non-pilot carbon trading enterprises before and after policy implementation, thereby examining the impact, mechanism and optimization conditions of market-based environmental policy on corporate green governance based on panel data of China's A-share listed companies from 2007 to 2019. In addition, PSM-DID and other methods are employed for preventing estimation bias caused by sample self-selection bias. It is found that: (1) the green governance level of pilot firms can be considerably improved by a carbon emission trading scheme (ETS); (2) the ETS primarily encourages enterprises to uphold their ESG obligations through increasing regulatory pressure from the government and corporate involvement in clean innovation; (3) enhancing regional marketization can strengthen the impact of carbon trading policy, and enterprises that are large and non-state-owned exhibit better performance with regard to green governance as a result of carbon trading policy. This paper provides practical experience for promoting corporate green governance to achieve the "dual carbon" goal based on a market mechanism from a micro perspective.

How the carbon emissions trading system affects green total factor productivity? A quasi-natural experiment from 281 Chinese cities

China’s emissions trading system is often cited as a model for developing countries using market-based means to solve pollution problems, but few have objectively assessed the solution from a productivity perspective. Therefore, in this study, the green total factor productivity (GTFP) of 281 prefecture-level cities was calculated by using the DEA–Malmquist method, and the policy effects were evaluated by setting up quasi-natural experiments. The results show that the carbon emissions trading system has a positive contribution to GTFP; when facing a more compatible carbon trading system, enterprises will choose two paths: innovation compensation and industrial upgrading to improve GTFP, so as to get rid of the cost constraints caused by carbon emission control; the policy effect of the carbon emissions trading system varies significantly in different regions. In the economically developed eastern region, the effect of policy implementation is relatively significant, while the effect of policy implementation in the western region is not significant. Further analysis shows that as a market-based environmental policy, the incentive effect of the carbon trading system relies on a perfect market system. This study provides empirical evidence and policy enlightenment for developing countries to build and improve the emissions trading system.

The Distributional Impacts of Carbon Pricing on Households: A Literature Review

Assessing macroeconomic impacts is essential to the design of cost-effective market-based environmental policies. As carbon pricing instruments (CPIs) take the center of the stage for emission abatement, their regressive nature gains attention and becomes a potential political obstacle to their implementation. Numerous studies analyze the distributional impacts of CPIs in individual jurisdictions and obtain various results, but there lacks an integrated view of patterns and variations of the results. By reviewing existing literature, this study finds that CPIs are generally regressive in developed countries with a few exceptions. For developing countries, no unanimous outcome is reached, but the results could be generalized into predictable patterns given the economic structures of the jurisdictions and designs of CPIs.

Do environmental markets cause environmental injustice? Evidence from California’s carbon market

Market-based environmental policies are widely adopted on the basis of allocative efficiency. However, there is growing concern that market-induced spatial reallocation of pollution could widen existing pollution concentration gaps between disadvantaged and other communities. We examine how this “environmental justice” (EJ) gap changed following the 2013 introduction of California’s carbon market, the world’s second largest and the most subjected to EJ critiques. We estimate that the program lowered GHG, PM2.5, PM10, and NOx emissions by 3–9% annually between 2012–2017 for sample industrial facilities regulated only by the carbon market. Using a pollution dispersal model to characterize resulting spatial changes in pollution concentrations, we find the program caused EJ gaps in PM2.5, PM10, and NOx from these facilities to narrow by 6–10% annually. We demonstrate that explicit modeling of pollution dispersal is critical for detecting these results.

The impact of carbon trading policy on regional ecological risk: Synergy between market-based environmental policy and government intervention

Eliminating or reducing ecological risks can help to observably guarantee the national security. In this article constructs a regional ecological risk evaluation framework is constructed on the basis of the Pressure-state-response model from three dimensions: social, environmental and natural dimension, and the quantitative research method is taken to investigate the ecological risks in 30 Chinese provinces from 2006 to 2017. Taking the establishment of a carbon emission trading market as a quasi-natural experiment, the author further explores the impact of market-based environmental policies on regional ecological risks and their heterogeneity, channels of action, and the synergistic effects of government intervention. It is found that: 1) The implementation of market-based environmental policies can improve regional responsiveness to ecological risks and significantly reduce the level of regional ecological risks, meanwhile the research results pass the identification assumptions and robustness tests. 2) The effects of market-based environmental policies are affected by the operational characteristics of market prices, liquidity and relative transaction scale. (iii)There are two essential approaches for market-based environmental policies to reduce regional ecological risks, named industrial structure upgrading and technology development. 4) Moderate government intervention can produce synergistic effects in the process of regional ecological risk reduction by market-based environmental policies, and it is able to maintain intervention produces policy synergistic effects within a temperate condition. In a word, these findings can provide both an important basis for adjusting the implementation scope and operational structure of market-based environmental policies. On the other hand, it can also offer a significant policy insight for regional ecological risk evaluation and management.

The role of situated knowledge and values in reshaping payment for hydrological services programs in Veracruz, Mexico: An actor-oriented approach

Payment for ecosystem services (PES) is a prominent neoliberal, market-based environmental policy tool to promote conservation of biodiversity and ecosystem services (ES) that has been applied since the late 1990s in both industrialized and developing countries. Recent studies have documented how PES programs do not actually function as market-based programs, and that they are often modified on the ground by local actors. Adding to this literature, our study uses an actor-oriented approach to examine how local actors in Veracruz, Mexico respond to and make changes to payment for hydrological services (PHS) programs, a prominent PES program used to address water quality and quantity issues. Drawing on interviews with 15 institutional actors and 58 landowners, we investigate how these actors challenge and modify these programs to make them more responsive to local socioecological conditions and needs. Our argument is that situated knowledge about land uses and socioecological conditions, and norms of equity and fairness, play central roles in empowering social actors to alternately adopt, contest, and re-shape PHS programs to better meet local conditions and needs.

Heterogeneous environmental policy tools for expressway construction projects: A crossregional analysis in China

Expressway construction often poses substantial environmental problems, requiring governments to introduce effective environmental policies that leverage a rich portfolio of environmental policy tools. Taking China as a case study, this study examines the environmental policy tools used in constructing expressways and policy implementation considering regional economic development levels. Within the scope of publicly available information, 355 environmental policy texts related to expressway construction were collected as a sample for the study. This paper classifies environmental policies into command-and-control, market-based, and public participation policies, constructing a model to measure environmental policy intensity, and exploring the impact of economic development on environmental policies. The research results reveal four notable findings. (1) Command-and-control environmental policies dominate the three types of environmental policies. (2) Local governments clearly prefer command-and-control environmental policy tools, resulting in the overuse of specific policy tools and an imbalanced policy system. (3) Economic development can cause local governments to endorse more environmental policies, but the structure of policy tools does not change. (4) Economic growth is not a significant driver of market-based environmental policies. This study quantifies environmental policy intensity in China, revealing the impact of economic development on environmental policy, and providing practical operational guidance for policymakers.