Reevaluating Environmental Policies from the Perspectives of Input-Output Networks and Firm Dynamics : The Case of Carbon Emission Trading in China

We (re)evaluate the general-equilibrium effects of (environmental) policies from the perspectives of input-output networks and firm dynamics. Using China's carbon emission trading system (ETS) as an example, we find that ETS leads to more patent applications, especially the ones associated with low-carbon technologies in the targeted sectors. The effects are muted at the firm level due to selection effects, whereby larger firms are selected and significantly affected. The effects also diffuse in input-output networks, leading to more patents in upstream/downstream sectors. We estimate a firm-dynamics model with input-output linkages and conduct policy experiments. ETS’s effects are amplified given input-output networks