Carbon emissions and firm innovation

The economic consequences of carbon reduction policies have been well documented in the literature. However, it remains unclear whether such policies can promote firm innovation. In this study, we examine the effects of carbon emission reduction on firm innovation in China with reference to the carbon intensity constraint policy (CICP) issued in 2009 to reduce greenhouse gas emissions. We design a natural experiment to investigate the effect of the CICP on firm innovation, and the results show that the introduction of the CICP significantly reduced firm innovation. Overall, this study offers clear practical implications for regulators concerned with the issues of firm innovation and environmental protection.