The Dynamic Bidirectional Causality Between Carbon Pricing and Green Technology Innovation in China: A Sub-Sample Time-Varying Approach

This study examined the dynamic relationship between China’s carbon pricing (CP) and green technology innovation (GTI) using monthly data from August 2013 to February 2025 through sub-sample rolling-window Granger causality tests. The results revealed a time-varying bidirectional relationship where CP significantly promotes GTI during periods when innovation offset effects dominate (such as from July to October 2021 and October 2023 to March 2024), but inhibits GTI when compliance cost effects prevail (as observed from February to June 2022). Conversely, GTI alternately suppressed CP from June to November 2017 and enhanced it from February to July 2024. These patterns demonstrate that the interaction between CP and GTI is critically shaped by three key factors: policy synergy between carbon markets and complementary environmental regulations, international competitive pressures from carbon border mechanisms, and financial market capacity to support green investments. Based on these findings, we propose a comprehensive policy framework that includes expanding emissions trading to heavy industries, implementing dynamic CP stabilization mechanisms, introducing innovation-linked quota incentives with 1.1 to 1.5 multipliers, and developing integrated green financial instruments. This framework can effectively align CP with GTI to accelerate China’s low-carbon transition while maintaining industrial competitiveness.