Impacts of emission trading scheme on technological progress: A case study in China

Despite its significant role in mitigating climate change, technology was usually exogenously treated in evaluating climate policy, particularly emission trading scheme (ETS); such treatment cannot comprehensively reveal how ETS affects technological progress. To narrow this research gap, we attempt to endogenize ETS-induced technological change in this paper. A dynamic recursive Computable General Equilibrium (CGE) model is employed to quantify ETS-induced progress of clean technology (PCT) and efficiency improvement. The Chinese nationwide ETS is taken as a case study. The CGE model results show that PCT negatively affects anthropogenic emissions, while efficiency improvement decreases GDP loss or abatement cost. Simultaneously considering both technological progress increases emission abatement but slightly decreases GDP in the long term. The most interesting finding is that PCT moderates the relationship between efficiency improvement and emission abatement. Hence, PCT is crucial in emission abatement and economic growth under climate policy.