How Climate Mitigation Policies Enhance Innovation through Human Capital and Clean Energy

Climate change is a critical global challenge with significant implications for the environment, economy, and society. In response, governments worldwide have implemented various policies aimed at mitigating its effects. This article investigates why some countries are more innovative than others by examining the role of institutionalization of climate change mitigation policy on technological innovation. It also explores the mechanisms through which this institutionalization impacts innovation. Using cross-sectional data from 111 countries, the analysis employs various econometric techniques, including ordinary least squares regression and two-stage instrumental variable methods. The findings reveal that institutionalization of climate change mitigation policy has a positive and significant effect on technological innovation. Countries that are strongly committed to addressing climate change tend to foster greater innovation. Furthermore, mediation analysis shows that this institutionalization positively influences technological innovation indirectly by enhancing human skills, research and development expenditure, clean fuel adoption, and access to affordable energy.