Does Carbon Policy Risk Enhance or Impede Green Innovation?
52 Pages Posted: 18 Oct 2022 Last revised: 20 Oct 2022
Date Written: October 8, 2022
Abstract
Technological progress has been regarded as one of main driving forces to facilitate the society’s transition to a low carbon economy. Exploring the effect of carbon policy risk on firms’ green innovation is important for understanding how regulatory risk impacts on firm innovation during the process of transiton. Using data from A-share listed firms in China from 2000 to 2018, we find that firms facing a high carbon policy risk tend to reduce their green innovation. This result is robust to tests intended to mitigate endogeneity and other alternative measures. This negative relationship is more pronounced among state-owned enterprises, carbon-sensitive firms, non-patent sensitive firms, and firms located in the eastern region, non-provincial cities, or regions with a high level of environmental enforcement than among other firms. Carbon policy risk increases firms’ financing constraints and costs and reduces their long-term debt. Our results also suggest that this negative effect of carbon policy risk on firm green innovation occurs over the long term and is stronger for green invention patent applications than for green utility-model patent applications.
Keywords: Climate change; Carbon policy risk; Green innovation; Green patent; China
JEL Classification: D21; O32; Q51; Q55
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