Assessing the Impact of Climate Change on Green Innovations: A Comparative Analysis of Developed and Developing Countries

Abstract

This study investigates the interaction effect of high-income and low-income green innovation on climate change from 2000–2023. The study employs a System Generalized Method of Moments (SGMM) estimator to explore the effect of different types of GHG emissions namely total CO₂, electricity, gaseous fuels, liquid fuels, and solid fuels on green innovation, which is proxied by the natural logarithm of patents in force. Results show that total CO₂ emissions and from the consumption of electricity and solid fuels drive worldwide innovation, whereas liquid fuels emissions negatively impact patent output. We find marked differences between developed and developing countries: while total CO₂ and gaseous fuel emission increase induce innovation responses in developed countries, the apparent innovation response for developing countries appears too limited to be significant, with marked effects on the innovation response phase concerning fundamental CO₂. R&D expenditure and GDP growth also serve as consistent positive drivers of innovation, regardless of context, while demographic factors have a stronger effect on innovation in more developed economies. The study highlights the challenges for policy, recommending boosted R&D funding in developed countries and investing in developing countries to build their capacity to innovate to meet climate change challenges. These insights add to the increasing literature around sustainable innovation, providing sets of suggestions to influence the unique interaction of climate and innovation in varied economic environments.