Innovation under dual policies: The impact of R&D subsidies and emissions trading on green patenting in Sweden

This paper examines whether the EU Emissions Trading Scheme (EU ETS) and innovation subsidies interact to enhance green innovation at the firm level. Using staggered difference-in-differences and matched samples, we find no evidence of synergetic effects: firms subject to both the EU ETS and innovation subsidies do not outperform those subject only to subsidies in terms of green patenting outcomes. By contrast, subsidies alone have a clear positive impact on green innovation. Firms receiving subsidies generate more green patents, receive more citations, and develop technologies with greater technical scope, especially when subsidy amounts are large. These findings imply that, while environmental policies like the EU ETS might create demand for green innovation, substantial subsidy support is essential to overcome market failures and promote the development and patenting of green technologies. • This paper studies how emissions trading and subsidies influence green innovation. • The paper uses firm-level data for Sweden and applies causal analysis techniques. • The paper finds no evidence of synergistic effects on green patenting activity. • The EU ETS did not encourage green innovation among ETS firms. • Subsidies had a positive impact on green innovation outcomes.