Adopt or innovate: Understanding technological responses to cap-and-trade
Open accessAbstract
One important motivation for creating cap-and-trade programs for carbon emissions is the expectation that they will stimulate much-needed low-carbon innovation. I construct a new panel of British firms to investigate this hypothesis, finding that the European carbon market has encouraged greater low-carbon patenting and R&D spending among regulated firms without necessarily driving short-term reductions in carbon intensity of output. This stands in contrast to past cap-and-trade programs, which have primarily spurred adoption of existing pollution control technologies, with little effect on innovation. I discuss how to reconcile these contrasting findings and implications for the future of carbon markets. (JEL D22, O32, O34, Q52, Q54, Q58)
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Prior studies document the positive impact of the EU-ETS on business innovation.
“These studies document the positive impact of the EU- ETS on business innovation”
From The Impact of Carbon Pricing on Corporate Sustainability: Evidence From the European Union (2026) · cites this paper as Calel (2020)
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- Authors
- Calel, R.
- Affiliations
- Georgetown University (US)
- Corresponding author
- Calel, Raphael
- ORCID
- Calel, Raphael
- Venue
- American Economic Journal: Economic Policy
- Publisher
- American Economic Association
- Published
- 2020-08-01
- Volume
- 12
- Issue
- 3
- Pages
- 170-201
- ISSN
- 1945-7731 (ISSN-L)
- 1945-774X
- OpenAlex
- W3083461837
- Cited by
- 166
- References
- 55
- Citations by year
- 2026: 14 · 2025: 41 · 2024: 36 · 2023: 28 · 2022: 17 · 2021: 17 · 2020: 7 · 2019: 4 · 2018: 1 · 2017: 1
- FWCI
- 10.36
- Type
- journal article
- Language
- en
- Open access
- green
- doi.org
- Locations
- American Economic Journal Economic Policy (publishedVersion)
- SSRN Electronic Journal (publishedVersion)
- London School of Economics and Political Science Theses Online (London School of Economics and Political Science) (submittedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Funders
- Economic and Social Research Council (ES/K006576/1, ES/R009708/1)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Climate Change Policy and Economics
- Social Sciences › Business, Management and Accounting › Marketing › Environmental Sustainability in Business
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Energy, Environment, Economic Growth
- Keywords
- emissions trading, CO2 emissions, low-carbon innovation, patenting, R&D investment, carbon intensity, EU Emissions Trading System, UK firms
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