Carrot and stick: Does dual-credit policy promote green innovation in auto firms?

The dual-credit policy is expected to achieve subsidy policy withdrawal through the effective market-oriented mechanism of credit trading, which has both rewards and sanctions for auto firms. The policy can activate the endogenous motivation of automakers to conserve energy and cut carbon emissions, which aids in creating a long-term mechanism to foster the growth of the auto industry. This paper examines the impact of the dual-credit policy on the quantity and quality of green innovation in auto firms using the difference-in-differences (DID) model. Based on the data of listed firms in the auto industry in the China A-share market from 2014 to 2020, we discover that the DCP-assessed auto firms’ green innovation performance improves significantly after implementing the DCP. By analyzing the mediating effect, we identify that the dual-credit policy enhances corporate environmental responsibility and R&D investment, thus improves their green innovation performance. Further, the role of the dual-credit policy in enhancing green innovation increases significantly with the weakening of government environmental subsidies and the strengthening of government environmental penalties. Our findings expand the research on the implementation effects of the dual-credit policy and policies combining environmental regulation and market incentives. We emphasize the importance of the dual-credit policy in furthering the reform of the energy consumption structure and building a green innovation system that is focused on the market, and we propose that the government play a complementary role with the market through reasonable regulation and supervision.