Assessment of how environmental policy affects urban innovation: Evidence from China’s low-carbon pilot cities program

Abstract

This paper evaluates the impact of China’s Low-carbon Pilot Cities (LCPC) program on urban innovation over the period of 2004–2016. Surprisingly, this program has lowered urban nongreen innovation without affecting urban green innovation. An average decline of 0.31 (ranging from 0.27 to 0.34) in urban nongreen innovation contributes most to the average decline of 0.29 (ranging from 0.25 to 0.32) in total urban innovation during this period. This finding is at odds with the Porter hypothesis that environmental policy may trigger innovation, especially green innovation. Rather, the LCPC program appears to have a crowding-out effect on urban nongreen innovation. A possible mechanism that generates such an outcome is the program’s negative influence on industrial firms without green innovation. Evidence of the reduction in the number of industrial firms without green innovation, the increase in the number of zombie firms and the reduction in foreign newborn firms all support this argument.