Induced Effect of Environmental Regulation on Green Innovation: Evidence from the Increasing-Block Pricing Scheme

Abstract

With increasing constraints on resources and the environment, it is of great practical importance to discover and utilize the induced effect of green technology through market-based tools, in order to simultaneously realize economic development and ecological sustainability. Based on unique patent data from 1999 to 2013, this paper examines the induced effect of China’s increasing-block electricity pricing scheme (IBP) on energy-efficient patents and checks whether the effect is neutral or biased. Furthermore, the quality of the induced patents is identified. The results reveal that increased green innovation is strongly related to the IBP scheme. In addition, the induced effect is biased towards green technology such that, apart from autonomous technological advances, the biased effect of IBP induced two more energy-efficient patents per hundred technological patents. However, the quality of the induced innovation is relatively low: compared to high-quality inventions, low-quality utility models showed greater and more significant growth due to the IBP. Our paper provides quantitative insight into the impact of the IBP and indicates that a reasonable pricing scheme can benefit both the environment and the economy.