The Impact of Carbon Emission Trading Pilots on Regional Innovation

Abstract

To investigate the driving effects of market-based environmental regulation on regional innovation, this study uses China's carbon emissions trading pilot programs as a quasi-natural experiment. Drawing on panel data from 227 prefecture-level and higher cities from 2005 to 2020, we employ a multi-period difference-in-differences (DID) model to empirically examine the impact of these pilot programs on regional innovation and to investigate the moderating roles of government intervention and the degree of marketization. The results indicate that carbon emissions trading pilot programs significantly promote regional innovation. This conclusion holds even after a series of robustness tests, including parallel trends tests, exclusion of pandemic-affected samples, exclusion of special cities, and PSM-DID analysis. Both government intervention and the level of marketization exert significant positive moderating effects, effectively amplifying the promotional role of carbon emissions trading pilot programs on regional innovation. Mechanism analysis reveals that carbon emissions trading pilot programs drive regional innovation by internalizing the external costs of carbon emissions, creating incentives for emission reductions, and generating technology spillover effects, while effective government intervention and a well-developed market environment can further amplify the policy's impact. The findings of this study provide empirical evidence and policy references for deepening the development of the national carbon market and integrating the "dual carbon" goals with the innovation-driven development strategy.