From heat to high-tech: How innovation responds to climate change

Abstract

This paper examines how firms respond to climate change through technological innovation. We emphasize that firms facing climate change are not always those innovating. Instead, innovation occurs either to mitigate a firm’s own climate-related damages (internal demand) or to supply climate-related technologies to other firms (external demand). To reflect this, we measure patent-specific exposure to climate change rather than traditional firm-level exposure to local temperatures. Our findings show that in China, climate adaptation patents increased by 8.62%, and climate mitigation patents grew by 10.68% in response to climate change. We document that new technologies respond positively to climate change due to rising public awareness, shifting demand, and regulatory pressures.