Guiding innovation towards green: the pivotal role of environmental regulations on innovation direction

Abstract: Green innovation is a pivotal way to achieve both environmental and economic benefits. This study constructs an evolutionary game model to validate the Porter Hypothesis from the perspective of guiding innovation resources toward green innovation. The findings indicate that (1) Environmental regulation can reset the expected returns of different innovation directions. When the value gap between different innovation directions exceeds a certain threshold, innovation direction selection strategies will eventually evolve into a dispersed innovation mode. This not only directs innovation resources towards green but also avoids the problem of innovation direction congestion. (2) Environmental regulation should be positively proportional to the economic value gap of innovation directions and the extent of environmental tax reduction, and inversely proportional to the pollution emission gap. (3) Weaker environmental regulations should be implemented to maximize social benefits when the economic value and pollution emission gap are both small. This reduces compliance costs for innovators and achieves higher social benefits. Conversely, when the economic value gap is large, stronger environmental regulations should be implemented to alleviate innovation direction congestion, and ensure resource allocation for green innovation. Therefore, it is essential to reasonably adjust the environmental regulations to achieve a positive cycle of sustainable development. Additionally, heterogeneous environmental regulations should be designed and implemented for different industries and types of innovation.