Does Energy Substitution Policy Affect Firm Innovation? Evidence from China

Using the staggered adoption of natural gas in China, we examine how energy substitution policy affects firm innovation. We find that firm innovation significantly increases following the passage of energy substitution policy. Moreover, the positive effect of energy substitution policy on firm innovation is more pronounced when firms are private, small-sized, located in low economic development regions. The channel test shows that firms adopting energy substitution policy can improve financial condition. Finally, we find that energy substitution policy has positive and significant effect on innovation productivity.