2 Findings and Analysis Market Policies Boost Clean Innovation & Radicalness; C&C Has Zero Significant Patent Effects Baseline regression shows one standard deviation rise in market-based policy index lifts firms’ weighted clean patent count by 32.9% (+0.05 extra clean patents per average firm); market policies positively improve clean tech originality (p<0.1) and exploration index (p<0.1), meaning firms explore statistics, covering 6,550 listed manufacturing firms across 17 EU economies (68,029 firm-year observations, 158,839 granted EPO patents). Patent classification: Split environmental patents into two categories per OECD’s environmental patent coding system: clean technologies (solar, EV, fuel cell, circular recycling) and abatement end-of-pipe tech (scrubber, engine efficiency retrofit); radicalness is measured via originality index (knowledge source diversity) and exploration index (new tech domain entry) weighted by seven-year forward patent citations. Baseline regression: Adopt PPML (Poisson PML with highdimensional fixed effects), control firm + year fixed effects, one-year lag for independent variables, two-way clustered bootstrap standard errors (country + parent firm, 1000 replications); separate regressions for total environmental, clean, abatement patents and two radicalness indicators. Causal identification via DID: Two quasi-natural experiments: 1.Market policy shock: France’s CCE carbon tax (announced 2012, implemented 2014, treatment=France, post≥2012); 2.C&C policy shock: Germany revised TA Luft stringent emission standard (approved 2001, enforced 2002, treatment=Germany, post≥2001). Robustness: Alternate 5-year citation weighting, additional country/industry new-firm controls and R&D intensity controls to validate core results. more cross-domain, breakthrough radical clean R&D. All C&C coefficients are small and statistically insignificant across clean/abatement/radicalness outcomes; stricter mandatory emission standards cannot stimulate patentable green innovation. DID Causal Test Confirms Divergent 1. France CCE Carbon Tax (Market Reform): Post-2012 policy announcement, treated French firms see significant rise in clean patent volume and two radicalness metrics (treat×post all p<0.01), abatement innovation remains flat; pre-event parallel trend verified via event-study graph, ruling out preexisting innovation gaps. 2. Germany TA Luft Strict C&C Upgrade: Post-2001 tighter regulatory reform, all interaction coefficients are negative yet statistically insignificant across all innovation indicators; event study confirms no post-policy surge in clean or abatement patenting. Core Mechanisms for Policy Heterogeneity 1. Market-based policy dual incentive: Continuous carbon/ pollutant price signals deliver permanent marginal reward for over-compliance; flexible compliance allows firms to delay low-value abatement spending and allocate capital into long-cycle radical clean R&D; economy-wide price shifts shrink incumbent polluting industries’ market size while opening large emerging market space for zero-carbon clean tech, pushing incumbents to pursue disruptive innovation to avoid market shrinkage. 2. C&C policy inherent limitation: Fixed uniform emission ceiling only incentivizes firms to meet legal minimum standard with cheapest existing end-of-pipe equipment; no extra economic gain for beyond-standard innovation; rigid mandated tech paths narrow firms’ R&D option set and discourage exploratory radical clean investment. Table 1 Descriptive Statistics Directing environmental innovation toward radical clean technologies for sustainable transitions: Market-based vs. command-and-control policies Public Policy BULLETIN
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