Are Both Quantity and Quality of Green Innovation Exalted in Polluting Firms Under Environmental Regulation?

Abstract

Green innovation plays a crucial role in the context of the low-carbon economy. Still, it is equally important to focus on gatekeeping the quality of innovation amidst the plethora of innovative outcomes. This article aims to investigate how China's carbon emission trading (CET) pilot will affect both the quantity and quality of green innovation among polluting firms. First, we construct a partial equilibrium model to describe the asymmetric effects of the CET pilot on green innovation. Then, we conduct empirical examinations based on a sample of polluted firms listed on the A-share market, using patent applications with their citation information. The results show that the CET pilot indeed stimulates the quantity of green innovation through the “leverage effect,” which is also moderated by the social responsibility firms assume. However, the green innovation quality and even the overall technological level are significantly inhibited. The results imply that there exists a certain “innovation illusion” in green innovation among polluting firms listed on the A-share market, suggesting that more effective incentive policies should be implemented to ensure both quantity and quality are improved synchronically.