Can Market-Based Environmental Regulation Promote Green Technology Innovation? Evidence from China

Abstract

To alleviate climate change and environmental issues, China has implemented many environmental regulation policies. This paper takes the SO2 and carbon emission trading pilots (SETP, CETP) in China as the quasi-experiment and, under the difference-in-difference framework, studies whether the market-based environmental regulation (MER) policy promotes green technology innovation. The investigation is conducted employing patent data with the “IPC Green Inventory” on the panel data of China’s 278 prefectural-level cities over the period 2003–2017. We found that 1) as for a single policy, SETP successfully promoted green technology innovation, but failed in CETP, which shows that not all MER policies can play a positive effect on green technology innovation. Meanwhile, SETP and CETP did not change the direction of technology innovation and had no impact on total technology innovation. 2) For the combination policy, SETP and CETP failed to jointly promote green technology innovation, and with the current MER policy in China, it is difficult to realize the policy combination effect. This result implies that repeated implementation of similar environmental policies failed to stimulate innovation. 3) Heterogeneity analysis shows that the promotion effect of SETP on green technology innovation, mainly in the eastern region, and the promotion effect on invention patents is more prominent than utility model patents, which shows that green technology has improved not only in quantity but also in quality. These findings provide empirical evidence and policy implication for the efficient implementation of environmental regulation.

How does the digital economy promote green technology innovation by manufacturing enterprises? Evidence from China

“…In recent years, the 'Matthew effect' has appeared in China's regional economic development, which indicates that there are gaps in capital, talents, and R & D level in different regions (Qu et al, 2022). Therefore, according to geographical location, we divided the area into central, western, and eastern regions.…”

“…The factors influencing enterprises' green technology innovation are mainly divided into governmental and market factors. Most studies focused on governmental factors, such as environmental regulations (Berrone et al, 2013;Yu et al, 2017;Qu et al, 2022) and governmental support (Xie et al, 2015;Bai et al, 2019;Wu et al, 2022); however, the positive impact of environmental regulation on green transformation by enterprises has gradually been diminishing (Leiter et al, 2011). To some extent, environmental regulation can increase an enterprise's operating costs (Berrone et al, 2013;Qu et al, 2022), which will prevent some enterprises from choosing green transformation.…”

“…Most studies focused on governmental factors, such as environmental regulations (Berrone et al, 2013;Yu et al, 2017;Qu et al, 2022) and governmental support (Xie et al, 2015;Bai et al, 2019;Wu et al, 2022); however, the positive impact of environmental regulation on green transformation by enterprises has gradually been diminishing (Leiter et al, 2011). To some extent, environmental regulation can increase an enterprise's operating costs (Berrone et al, 2013;Qu et al, 2022), which will prevent some enterprises from choosing green transformation. Moreover, although governmental support partially subsidizes resources needed for GTI, this may bring dependency problems, and in reality the allocation of innovation resources by enterprises needs to be more dynamic and flexible (Diewert et al, 2018;El-Kassar and Singh, 2019;Feng et al, 2022).…”

Does green finance promote enterprises’ green technology innovation in China?

“…Traditional financial institutions may have some drawbacks in supporting enterprises' green technology innovation activities. In addition, the existing literature so far also confirms the driving role of environmental regulations (Jia et al, 2022;Ma et al, 2022;Qu et al, 2022), firm characteristics (Li et al, 2017), and government subsidies (Hu D. et al, 2021) on corporate green innovation. However, the green finance perspective is rarely covered.…”

“…Other essential factors affecting green technology innovation need to be controlled. The choice of control variables is reflected in the relevant research (Cai et al, 2021;Qu et al, 2022), as follows: 1) Enterprise size (Size):…”