Heterogeneous emission trading schemes and green innovation

To stabilize the global CO2 concentration in the long run and secure a net zero emission development path, low-carbon innovation is imperative. This paper evaluates the impact of emission trading schemes on low-carbon innovation. Particularly, we focus on the seven emission trading pilots in China. They employed diversified scheme designs, and reaping heterogeneous low-carbon innovation effects. The empirical results show that 1) low-carbon innovation in the three pilots of Beijing, Shanghai, and Guangdong responds more to the national demand for green technological changes, rather than to local policy shocks; 2) the Hubei pilot is the only successful one in raising low-carbon innovation motivations. Its success may be related to distinctive features of the market, including active transaction of carbon allowances, ambitious utilization of the auction mechanism in initial allowance allocation, and focus of regulation capacities on the most influential emitting entities. These features should be deliberately utilized in design the national carbon market, which has been pronounced at the end of 2017. Our research highlights the importance of detailed mechanism design for securing dynamic effectiveness of carbon emission trading schemes.