From heat to high-tech: How innovation responds to climate change

Editor’s note: For a broader synthesis of themes covered in this article, check out our VoxDevLit on Climate Adaptation.

Much of what we know about climate adaptation focuses on households, farmers, and local governments. In contrast, the role of firms—especially in developing countries—has received limited attention, despite their central role in creating and deploying the technologies needed for both adaptation and mitigation. Among the many strategies available, innovation is arguably the most transformative; for instance, research on the US has found that innovation in agriculture responds to climate risk (Moscona and Sastry 2023).

In Long and Wang (2025), we examine the industrial sector in China and find that rising temperatures significantly increase innovation in both climate adaptation and mitigation technologies. Crucially, innovation is not confined to firms directly exposed to climate risks. Instead, it emerges from shifts in demand across the economy, driven by citizen behaviour and government policy.

Measuring patent-specific climate change exposure

A key insight of our study is that the firms innovating are not always the ones facing the highest temperatures. Most existing work measures climate risk based on firm location, but this overlooks an important dynamic: firms may not develop technologies for themselves, but rather for their customers. For example, a company in a temperate city might design cooling systems for clients in heat-prone regions.

To capture this, we measure patent-specific climate exposure, linking patents to the products they cover and the geographic demand for those products. Using natural language processing (NLP), we match patent descriptions to products, then calculate heat exposure based on where demand for these products is concentrated. This method reveals that innovation incentives depend on who needs the technology, rather than who is exposed to heat directly.

Figure 1: Local heat exposure and climate-related patents

Notes: We show that local heat exposure has little correlation with climate-related patenting. This validates our approach of moving beyond geography to capture more nuanced exposure pathways.

Climate change leads to more and better climate-related innovation

Using this patent-level climate exposure, we find that heat exposure since 2003 leads to:

• An 8.62% increase in climate-adaptation patents (e.g. cooling technologies),
• A 10.68% increase in climate-mitigation patents (e.g. carbon reduction technologies),
• No significant change in non-climate-related patents (which serves as a placebo, suggesting no crowding-out effect).

Moreover, we find that climate-induced patents tend to be of higher quality, as measured by citations, indicating meaningful technological advancement rather than strategic or defensive filing.

Spillovers along the supply chain

One important finding is that climate-related innovation does not stop at the directly affected product. Using input-output tables, we trace the relationships between upstream and downstream sectors. For example, rising demand for air conditioners leads to innovation not only in cooling systems but also in upstream cooling chemicals and downstream smart grids.

When we include both direct and supply chain-linked product exposure, the estimated impact of climate change on innovation rises substantially. Our findings suggest that supply chain spillovers increase the innovation response by four- to fivefold compared to direct effects alone, which aligns with evidence from recent studies on technological spillovers (Pankratz and Schiller 2024).

Why do firms innovate and who innovates? 

We identify two driving forces explaining why firms innovate:

• Citizen awareness and demand shift: Extreme heat affects not just supply, but demand. We use Baidu Index search data to track public attention to climate change. Cities experiencing more heat see more searches for terms like ‘climate change’ and ‘global warming’. We also observe higher household demand for air conditioners—a clear example of adaptive behaviour. This demand shift feeds back into the innovation process. Firms in cities with high citizen climate awareness file significantly more adaptation and mitigation patents.
• Government awareness and policy response: China’s governments have responded to climate stress by tightening regulations. We construct an index of government climate regulation based on keywords in official policy documents and firms’ CO₂ shadow prices. Cities with greater heat exposure tend to have higher awareness and enforce stricter climate policies. Firms operating under tighter regulations are more likely to invest in mitigation technologies. This is consistent with the role of top-down incentives in guiding low-carbon innovation, especially in contexts like China where governments actively shape industrial priorities.

We find substantial heterogeneity across:

• Technologies: The strongest effects are in technologies classified under ‘human necessities’, especially agriculture and health.
• Regions: Innovation is higher in areas with greater citizen and government awareness of climate change.
• Inventors: Private firms show stronger responses than public entities, which likely reflects greater profit sensitivity. However, we also find that public-private partnerships play a larger role in mitigation than adaptation, reflecting the regulatory context.

Implications for climate change and innovation

Climate change is a significant challenge which is driving technological change. Our findings highlight how rising temperatures reshape innovation landscapes through both direct and indirect channels. By mapping product demand to patenting behaviour, we show how firms respond to the evolving needs of consumers and regulators alike.

References

Long, X and Z Wang (2025), “From heat to high-tech: How innovation responds to climate change,” Journal of Development Economics, 103525.

Moscona, J and K A Sastry (2023), “Does directed innovation mitigate climate damage? Evidence from US agriculture,” The Quarterly Journal of Economics, 138(2): 637–701.

Pankratz, N M C and C M Schiller (2024), “Climate change and adaptation in global supply-chain networks,” The Review of Financial Studies, 37(6): 1729–1777.