The carbon emissions trading scheme and green technology innovation in China: A new structural economics perspective

Carbon emissions trading schemes are an essential market-oriented mechanism for carbon reduction. This study assumes China’s emissions trading scheme (ETS) policy as a quasi-natural experiment to examine its impact on green technology innovation using panel data of cities in China from 2008 to 2018. The moderating effects of effective governance and enterprise viability are further investigated from the perspective of new structural economics. The results indicate that China’s ETS policy can significantly promote green technology innovation in pilot cities. Further findings demonstrate that environmental regulation and development strategy can substantially enhance this positive effect, confirming the effectiveness of Chinese policies. A lower proportion of state-owned enterprises and higher total factor productivity is also found to strengthen such impact, indicating that viability can advance the effectiveness of market environmental regulations. Moreover, we identify significant regional heterogeneities indicating that the cities in the western region or old industrial bases do not fully leverage the advantages of the green innovation effect of ETS. Our findings provide insights for policymakers in developing countries regarding the role of efficient markets and effective government interventions for advancing carbon reduction and green technology innovation through policy optimization.