Government-led innovation and carbon emissions: evidence from China

Effective government-led innovation is essential for developing countries, such as China, which lack market mechanisms to address the threat of climate change. However, previous studies have ignored the role of government-led innovation in regard to carbon emissions. This study exploited exogenous quasi-natural experiments on a national innovative city pilot (NICP) policy and employed the difference-in-differences (DID) method to investigate the impact of government-led innovation on carbon emissions. This study concluded that government-led innovation can substantially reduce carbon emissions with a time-lag effect. The underlying mechanisms include improvements in technological innovation, energy consumption, and industrial structures. Government-led innovation encourages green innovation. Comparatively, this carbon reduction effect primarily exists in midwestern cities, cities with low administrative levels, and cities with high human capital. Our findings suggest that governments should try to increase their R&D investments in economically disadvantaged areas and focus on synergies with human capital to reduce carbon emissions.