Which green path to follow: The development of green transportation technology under the EU ETS and its interplay with carbon emission reduction

Abstract

The reduction of carbon emissions is a key element in the fight against the climate crisis. Freight transportation emissions account for 5–8% of global carbon emissions and are among the costliest to abate. This study examines the impact of the European Union Emissions Trading System (EU ETS) on green transportation technology development as a pathway to emission reduction through the lens of the Porter Hypothesis. For this we combine patents from PATSTAT with carbon emission data from EUETS.info of non-financial manufacturing, trade and transportation firms regulated under the EU ETS. First, we use a SARIMA interrupted time series analysis on all patent filings classified under the Y02T category for green transportation technologies from 2000 to 2020. Our findings indicate that stringent EU ETS reforms in 2013 are associated with an increase in the share of green transportation patent filings relative to general green patents. Second, we use a firm-year panel dataset of 4,064 firms and 53,470 firm-years to calculate fixed-effects quantile regression models with lagged responses of green patenting on carbon emission reduction. We demonstrate that green transportation patents are associated with firm-level carbon emission reductions, with effects growing over time. In contrast, general green patents do not exhibit the same impact. Our results offer empirical support for the Porter Hypothesis, adding to the research how stringent environmental regulations can drive sector-specific technological advancements and contribute to climate goals. These findings inform policymakers on the effectiveness of stringent market-based environmental instruments in fostering targeted green innovation and achieving emission reductions.