To innovate or not - that is the question A study investigating how the number of patents applications has been affected by the EU ETS

This thesis examines how patent applications (as a proxy measure for innovation) in regulated sectors were affected by the implementation of the European Emission Trading System (the EU ETS) in 2005. The studied EU ETS-regulated sectors are cement and manufacturing of iron and steel with aviation sector as a placebo check. To test this relationship, I apply a difference-in-differences strategy with a pooled data set between 2000 and 2016. The treatment group consists of Belgium, France, Germany, Italy, Spain and Sweden. While Canada, Mexico, Russia and Taiwan represent the control group. Patent data for the EU ETS-regulated countries is defined by applications to the European Patent Office, while for non-EU ETS regulated countries it comes from their respective national patent office. Fixed effects were employed to control for the presence of clusters in sectors and country. No relationship between patent applications and the chosen EU ETS-regulated sectors due to the EU ETS can be established in this thesis. This differs from the positive effect found in previous research. Such a conclusion in this thesis holds as the overall evidence for the three EU ETS-regulated sectors.MSc in Economic