The Diminishing Marginal Effect of R&D Input and Carbon Emission Mitigation

Evidence shows that a variety of macroeconomic and firm level factors have a positive impact on carbon emission mitigation. However, little is known regarding the comprehensive effect of research and development (R&D) input on a firm’s environmental performance. Using a data set comprised of public firms operating in 52 countries from 2002 to 2015, this paper investigates the effect of R&D input on carbon emission mitigation. Our finding shows that while R&D input remains one of the most important approaches for mitigating carbon emission, the marginal effect of technological progress on carbon emission reduction tends to decrease. Furthermore, there is an inverted U-shaped relationship between R&D input and carbon emission reduction, where the turning point is established when the R&D input reaches 22.91% of a firm’s operational expenses. To maintain a sustainable emission reduction effect, a dynamic technological progress model with sustainable marginal effects is developed and offers a new policy option for continued efforts to meet carbon emission reduction targets.