Can carbon market efficiency promote green technology innovation for Chinese companies?

Abstract

The carbon trading scheme is a major institutional innovation for China to promote green and low-carbon economic development. This paper studies the relationship between the carbon market efficiency and enterprises' green technology innovations. First, we assess the efficiency of China's pilot carbon markets using the entropy-based TOPSIS model. Then, we adopt a continuous multi-period difference-in-differences model to explore the effects of carbon market efficiency on firms' green technological innovation. In addition, we analyze the heterogeneous effects of carbon market efficiency with regard to green patent types, industry types, and enterprise ownership. Finally, we examine how carbon market efficiency impacts firms' green innovation. We find that carbon market efficiency can increase enterprises' green patent applications, but the effect is limited. Carbon market efficiency has no discernible impact on green invention patents; it can only enhance green utility model patents. This phenomenon is more prominent in low-energy-consuming industries and private enterprises. We document that carbon market efficiency can enhance enterprises' R&D intensity and policy subsidies, thereby boosting green technology innovation. Our findings have important implications for improving the carbon market efficiency and firms' green technology innovation.