Environmental regulation and green innovation: Evidence from China's carbon emissions trading policy

This paper investigates the impact of environmental regulation on green innovation to explore how to achieve a win-win situation of environmental protection and economic development. Using green patent data of listed companies in heavy polluting industries from 2011 to 2016, we find that China's carbon emissions trading pilot policy has induced green innovation of firms in pilot areas. The positive effect is greater for invention patents, large-scale firms, non-state-owned firms and firms with high external attention, which support the channels of internal benefit-cost tradeoffs and external pressure. Our study provides insights which aid in the design of environmental regulation.