Industrial CO2 intensity, indigenous innovation and R&D spillovers in China's provinces

The industry accounts for 70% of China's total energy-related carbon dioxide (CO2) emissions and plays a crucial role in CO2 emissions mitigation. Using panel data of China's 30 provinces from 1999 to 2011, this study analyzes the effects of different technological factors on industrial CO2 intensity including indigenous research and development (R&D) activity, spillovers through increasing openness, and interregional R&D spillovers which are less discussed. The results do not support beneficial spillovers on CO2 intensity from increasing openness in the form of foreign direct investment (FDI) and trade. Instead, indigenous R&D activity and interregional R&D spillovers can decrease the industrial CO2 intensity and they are statistically significant. However, both of the two effects depend on the level of local R&D intensity, indicating a double effect of raising local R&D intensity: on the one hand, increasing local R&D intensity will increase its beneficial effect on CO2 intensity; on the other hand, increasing local R&D intensity will also increase the capacity of exploiting R&D spillovers from neighbor provinces. Based on the above results, this study suggests that regional policies aimed at both building indigenous innovation capacity-especially in inland provinces-and promoting technology spillovers through cooperation and technology transfer should be strengthened simultaneously.