Does Environmental Policy Reduce Enterprise Innovation?—Evidence from China

Abstract

Abstract:With the serious worldwide problem of carbon emissions, carbon emissions' control and trade have become necessary policies adopted by the governments, after the establishment of the EU Emissions Trading System (EU ETS), China has also implemented a similar carbon emission trading pilot policy which plays a vital role in environmental regulation and influences enterprise behaviors, so this paper will put more focus on the impact of this policy on the enterprise innovation. In this paper, we construct a theoretical model and use the "Chinese Carbon Emissions Trading Pilot Policy" as a quasi-natural experiment to accurately identify the net causal effect of this environmental policy on enterprise innovation. Moreover, we use the synthetic control and difference-in-differences methods to eliminate the endogeneity to a large extent and conduct the robustness tests, difference-in-differences method, placebo test, and permutation test to respectively confirm these results. The results show that the implementation of carbon emissions trading policy will significantly reduce the enterprise innovation in general, this conclusion is contrary to the EU ETS's effect, which is confirmed by plenty of previous empirical study. However, this policy has different effects across enterprises of different industries and different types of innovation. It can promote enterprise innovation of environmental industry, but it will inhibit enterprise innovation of non-environmental industry; besides, it can promote the development of green technical innovation and inhibit non-green technical innovation, which is basically identical to the causal effect of EU ETS.

Impact of Carbon Emission Trading System Participation and Level of Internal Control on Quality of Carbon Emission Disclosures: Insights from Chinese State-Owned Electricity Companies

“…Our study employs the difference-in-differences (DID) method to explore the impact of CN-ETS participation on the quality of carbon emission disclosures. The DID is the most appropriate method for evaluating the impact of CN-ETS implementation on the quality of carbon emission disclosures as suggested by the prior literature [45][46][47][48].…”

Is Green Regulation Effective or a Failure: Comparative Analysis between Bangladesh Bank (BB) Green Guidelines and Global Reporting Initiative Guidelines

“…Comyns [13] conducted a study of multinational companies' (oil and gas) from the years 1998 to 2010 and stated that EU emission trading scheme regulations and GRI guidelines that regulate companies disclose better quality and quantity of GHG information in their sustainability reports compared to non-regulated companies. Feng et al [49] documented that carbon emission trading policies reduced China's enterprises innovation capability. Moreover, Carrots and Sticks [14] report that there were 383 sustainability reporting regulations in 64 countries in the world in 2016.…”

Low-carbon innovation induced by emissions trading in China

“…Our findings show significant induced innovation effects of the ETS both directly on ETS firms and indirectly on large non-ETS firms on top of other climate policy influences. The identified effects help to sort out previously inconsistent research findings related to but not directly from emissions trading in China: policy announcement in 2011 of ETS pilots has a positive effect on innovation from a small set of publicly listed firms possibly but not necessarily subject to emissions trading 23 ; the aggregate effect at the regional level was arguably negative 24 ; energy price, as a proxy for carbon price, has a positive effect on clean innovation but a negative one on other innovation 25 . By using the same estimation method, our results are directly comparable to the innovation effect of the EU ETS 22 , showing a similar, significant effect on individual ETS firms but limited impacts at the regional level.…”