Carbon finance and low-carbon technological change: Evidence from China

Promoting carbon finance is considered a solution for supporting climate change mitigation. This article investigates the impact of carbon finance development on low-carbon technological change, exploiting textual analysis technology to measure the low-carbon innovation quality of 2953 CO2 emission allowance enterprises and evaluating the carbon finance index of eight pilots. Our panel regression results from 2014 to 2021 show that carbon finance encourages enterprises with CO2 emission allowances to upgrade their low-carbon innovation quality. The findings remain robust after using a variety of tests, including the instrumental variable (IV) approach, alternative innovation quality measure, replacement patent application with grant, etc. Our heterogeneity results indicate that the effect of carbon finance on low-carbon technological change is only statistically significant in non-state-owned enterprises, resulting from administrative government intervention in China's carbon market. Additionally, enterprises with stronger technology intensity show a statistically significant impact of carbon finance on the quality of low-carbon innovation. Furthermore, the mechanism shows that the effect of carbon finance on low-carbon technological change can be attributed to strengthened R&D intensity and mitigated financial constraints. This study sheds light on the positive significance of carbon finance and has a certain guiding role for the promotion path of China's national carbon market to support low-carbon transformation.