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Cap-and-Innovate: Evidence of regulation-induced innovation in California

Author

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  • Vanessa da Cruz

    (CER-ETH Centre of Economic Research at ETH Zurich, Switzerland)

Abstract

The paper applies the synthetic control method to examine the effects of California’s Cap-and-Trade Program on environmental innovation. The analysis exploits the International Patent Classification system to identify patents relating to environmentally sound technologies. This enables the study to focus on the effects of the policy intervention on green patent filings. A counterfactual is constructed by the combination of other states in the US which allows the comparison of patent applications in California to the estimated counterfactual situation in the absence of a Cap-and-Trade program. The study finds that the number of patents related to green technologies increased by approximately 22.5% after the passing of the Cap-and-Trade regulation. This result is robust to alternative specifications of the synthetic control method.

Suggested Citation

  • Vanessa da Cruz, 2022. "Cap-and-Innovate: Evidence of regulation-induced innovation in California," CER-ETH Economics working paper series 22/377, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:22-377
    as

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    References listed on IDEAS

    as
    1. Jaffe Adam B. & Stavins Robert N., 1995. "Dynamic Incentives of Environmental Regulations: The Effects of Alternative Policy Instruments on Technology Diffusion," Journal of Environmental Economics and Management, Elsevier, vol. 29(3), pages 43-63, November.
    2. Barbieri, Nicolò, 2015. "Investigating the impacts of technological position and European environmental regulation on green automotive patent activity," Ecological Economics, Elsevier, vol. 117(C), pages 140-152.
    3. Noailly, Joëlle, 2012. "Improving the energy efficiency of buildings: The impact of environmental policy on technological innovation," Energy Economics, Elsevier, vol. 34(3), pages 795-806.
    4. Alberto Abadie & Alexis Diamond & Jens Hainmueller, 2015. "Comparative Politics and the Synthetic Control Method," American Journal of Political Science, John Wiley & Sons, vol. 59(2), pages 495-510, February.
    5. Alberto Abadie, 2021. "Using Synthetic Controls: Feasibility, Data Requirements, and Methodological Aspects," Journal of Economic Literature, American Economic Association, vol. 59(2), pages 391-425, June.
    6. David Popp, 2003. "Pollution control innovations and the Clean Air Act of 1990," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 22(4), pages 641-660.
    7. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
    8. Maria Urbaniec & Justyna Tomala & Sergio Martinez, 2021. "Measurements and Trends in Technological Eco-Innovation: Evidence from Environment-Related Patents," Resources, MDPI, vol. 10(7), pages 1-17, June.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Kramer, Niklas & Lessmann, Christian, 2023. "The Effects of Carbon Trading: Evidence from California’s ETS," MPRA Paper 116796, University Library of Munich, Germany.

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    More about this item

    Keywords

    Induced Innovation; Environmental Policy; Climate Change; California Cap-and-Trade Program;
    All these keywords.

    JEL classification:

    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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