By conducting the difference-in-difference method, this paper investigates the effect of Japan’s regional emissions trading scheme on firms' R&D and outsourcing. The analysis reveals that Japan's regional ETS promoted R&D during the first compliance period by targeted firms that had already conducted R&D before the ETS was introduced, while the ETS did not increase outsourcings by targeted firms overall. The result implies, by taken into consideration other studies showing that the Japan’s regional ETS did not induce carbon leakage within firms, that the ETS has promoted innovation without inducing carbon leakage. However, we find that targeted firms that did not actively engage in R&D increased outsourcing during the compliance period. The result suggests a possibility that the ETS may induce carbon leakage when the emission reduction target becomes too severe for targeted firms to achieve it through innovation.

Professional activities: Reviewer at Energy Policy journal

This project aims to examine how Japan’s regional Emissions Trading Schemes (ETSs) affect CO2 emissions at the installation level. Although the official government installation-level dataset is not currently accessible in this financial year, project has been made through related research showing that ETSs can affect productivity and innovation. These findings provide valuable insights into this project, guiding the design of further analyses, such as mechanism.Given the staggered implementation of Japan’s ETSs, the project employs a staggered difference-in-differences approach based on the Callaway and Sant’Anna (2021) estimator. This method allows us to capture the treatment effect heterogeneity across different cohorts and over time. By defining treatment groups according to their specific adoption timing and comparing them to units not yet treated, we can derive a more accurate average treatment effect on the treated (ATT). This approach enhances the credibility and robustness of our estimates.With the recent award of Grants-in-Aid for Scientific Research, I am able to apply for access to the official government installation-level dataset in the next financial year. Therefore, I can use installation-level data to empirically investigate the impact of ETSs on CO₂ emissions. Once the government data is obtained, I will extend the analysis to provide a more comprehensive assessment of how Japan’s ETSs mitigate CO₂ emissions at the installation level. Finally, the findings will offer valuable insights into the environmental efficacy of ETSs and inform policy discussions on enhancing market-based approaches to emissions reduction.

This study aims to investigate the effects of Emissions Trading Schemes (ETSs) on green innovation, as measured by patent applications for environmentally friendly technologies. By using firm-level data, this study employs a staggered difference-in-differences approach to capture the dynamic and heterogeneous effects of ETS policies across regions.Our empirical analysis shows that, overall, ETSs do not significantly drive green innovation. However, it is observed in the Tokyo ETS, which appears to foster an increase in green technology patents. One possible explanation is that the Saitama ETS, operating largely under voluntary regulatory measures, may lack the rigorous enforcement necessary to incentivize innovation compared to the more structured Tokyo ETS. Moreover, given the extended time lag between the development and commercialization of new technologies, firms currently subject to ETSs might still be in the early stages of innovation. Therefore, the full impact of these schemes on green innovation could take longer to materialize.In this financial year, we summarize our findings and finish a manuscript. We will submit it to an international English-language journal before the end of this financial year. Although there is a possibility of rejection, we are prepared to revise and resubmit the work based on feedback. The project is concluded within this fiscal year, despite some delays in the submission process.Looking ahead, the project could be enriched by a more detailed exploration of the regulatory differences between ETS programs and by incorporating additional robustness checks. These extensions would further clarify the relationship between policy design and the pace of green technological advancement.

  This project was initially conceived to investigate the impact of Emissions Trading Systems (ETSs) on innovation and economic activities in both Japan and India. As the study progressed, it became evident that the ETS in India was implemented only for a limited period, and crucial data necessary for a comprehensive analysis was not available. This unforeseen constraint compelled a strategic recalibration of the research focus. Consequently, the project's scope was refined to concentrate exclusively on Japan's ETS. This pivot allowed for a more in-depth exploration within the Japanese context, leveraging the availability of robust and comprehensive data.  The study explores the impact of regional ETSs on different types of innovation activitiesincluding green (non-green) patenting and R&D activities in the case ofJapan. By employing a heterogeneity analysis, the study also investigates theinterplay between ETS-induced innovation and firms' competitiveness. A doublyrobust difference-in-difference analysis, supplemented by uniquefirm-level survey data, forms the methodological robust of this study.Additionally, the study conducts several robustness tests, including dynamicDiD analysis, tests for violations of the Stable Unit Treatment ValueAssumption (SUTVA), and placebo tests, to ensure the reliability of theempirical results.  This study's key findings and contributions are asfollows. First, we find that Japan's regional ETSs enhance targeted firms' engagement in both patent applications and R&D activities. Specifically,patenting activities show improvement during the initial stage, while R&Dactivities are enhanced during the compliance period covered by this study. Itindicates that the process innovation is improved rather than productinnovation under Japan's regional ETSs, which is consistent with existing literature.However, this study does not find evidence that Japan's regional ETSsspecifically encourage green innovation within the study period. Targeted firmsseem to prefer purchasing high-efficiency equipment or prioritizing immediatelyapplicable technologies, which may not be captured in the count of greenpatents. Second, this study finds that the Japan's regional ETSs increase thecompetitiveness of targeted firms, particularly those that areinnovation-intensive. This finding supports the Porter Hypothesis in theJapanese context, indicating that ETS-induced innovation improves firms' competitiveness.  The study, while robust in its current form, acknowledges the intrinsic challenges in fully delineating the causal repercussions of ETS through the employed doubly robust DiD estimation technique. Moving forward, the research intends to rigorously revisit and refine the estimation methodology to fortify the reliability of the findings.