Assessing carbon shadow prices and the role of green technology innovation: insights from EU countries

Reducing greenhouse gas emissions involves trade-offs, with the carbon shadow price serving as a key metric for assessing abatement costs and environmental performance. While green technology innovation is crucial for climate mitigation in the EU, its impact on the carbon shadow price remains underexplored. This study estimates the carbon shadow price for 27 EU member states from 1995 to 2019 using By-production Data Envelopment Analysis and examines the role of green innovation through fixed-effects and threshold regression models. The results show a significant increase in the carbon shadow price, indicating improved environmental performance, though disparities across member states reflect uneven progress. A positive relationship between green innovation and the carbon shadow price underscores its importance in enhancing environmental outcomes. Threshold regression reveals a nonlinear effect, suggesting that innovation only significantly affects the carbon shadow price once economic development and policy intensity surpass certain thresholds. This study offers new insights into the relationship between green innovation, economic development, and environmental policy, guiding low-carbon transitions in the EU and beyond.