Does the pilot emissions trading system in China promote innovation? Evidence based on green technology innovation in the energy sector

The Chinese government promulgated a carbon emissions trading system (ETS) pilot in 2011 and gradually expanded its scope. Based on energy-related green patent applications in 283 Chinese cities from 2003 to 2018, this study investigates the impact of the ETS pilot on green technology innovation in the energy sector (GTIES). By employing a spatial difference in difference (SDID) model and multi-dimensional empirical tests, our results show, first, that the pilot policy has reduced GTIES to a certain extent, due to the higher environmental regulation compliance costs. Second, the ETS pilot has weakened the green technology innovation ability of both pollution intensive industries and non-pollution intensive industries, and its total effect on non-pollution intensive industries is about 1.85 times that on pollution intensive industries. Third, the development of GTIES in pilot regions has been restrained weakly, and the promoting impact on GTIES in the neighboring region is not significant. This study provides empirical evidence for the evaluation of the pilot policy at the city-industry-regional level, revealing enlightenment on industrial policy and the need for regional collaboration in the presence of spatial spillover effects.