Environmental policy and directed technological change: evidence from the European carbon market

Working Paper 75


This paper was updated in February 2013

This paper investigates the impact of the EU Emissions Trading Scheme (EU ETS)on technological change.

We exploit installations-level inclusion criteria to estimate the impact of the EU ETS on firms patenting.

We find that the EU ETS has increased low-carbon innovation among regulated firms by as much as 10 per cent, while not crowding out patenting for other technologies.

We also find evidence that the EU ETS has not impacted patenting beyond the set of regulated companies.

These results imply that the EU ETS accounts for nearly a 1 per cent increase in European low-carbon patenting compared to a counterfactual scenario.

Raphael Calel and Antoine Dechezleprêtre