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Abstract:
Environmental innovations are one of the most potent means to mitigate climate change. With the European
Union Emissions Trading System (EU ETS), the EU has designed a policy instrument with a core objective of
promoting investments in innovative, low-carbon technologies. To evaluate the effectiveness of the EU ETS in
achieving this objective and to discuss potential policy amendments conducive to this end, this study relies on a
literature review of 43 academic articles from 2005 to 2022. Our results indicate that the findings from ex-post
empirical analyses provide an ambiguous picture of the link examined herein, potentially due to the contextual
heterogeneity of the studies, making it difficult to compare results across studies and amass evidence that can
provide practical guidance to policymakers. Notwithstanding, there is near consensus that, so far, the EU ETS has
failed to spur the technological change required to achieve carbon neutrality. This failure is implicitly attested to
by the several amendments to the EU ETS over time. However, the impact of these amendments on technological
change has received only limited attention by the literature. Overall, the EU might stimulate technological
change by promoting environmental research networks, international cooperation and organizational
innovation.
