Environmental Protection Tax Policy and Green Innovation of Heavy-Polluting Enterprises: Evidence from China

Abstract

Since 2018, China has implemented the Environmental Protection Tax as a market-based envi-ronmental regulation tool to encourage enterprises, especially heavy-polluting ones, to reduce emissions and engage in green innovation. The effectiveness of this policy in promoting green innovation has become a focal point of attention for Chinese society, as it directly relates to the coordinated high-quality development of the economy and environmental protection, as well as the achievement of China’s “carbon peaking and carbon neutrality goals”. This study evaluates the green innovation effect of the Environmental Protection Tax policy on heavy-polluting enterprises in China using micro-data of listed enterprises from 2003 to 2019, based on the new market-oriented environmental regulation tool. We employ the propensity score matching and differ-ence-in-differences method (PSM-DID) to follow up on the green innovation effect of China’s Environmental Protection Tax policy and reveal its implementation effect. Empirical results indicate that, first, the Environ-mental Protection Tax policy contributes to heavy-polluting enterprises’ R&D innovation of green patents, and this conclusion holds through various robustness tests. Second, the policy’s impact on green innovation types of heavy-polluting enterprises exhibits heterogeneity, with a more significant positive effect on the utility model patent than on the invention patent. Third, the green innovation effect of the policy differs ac-cording to regional economic development and enterprise ownership attributes. Finally, financing constraints do not significantly affect the green innovation of heavy-polluting enterprises. These enterprises remain pro-active in green innovation, even under high financing constraints. To further promote green innovation of heavy-polluting enterprises and achieve China’s dual carbon goals, the government should continue to imple-ment and improve the Environmental Protection Tax policy, leveraging its positive effect on green innovation.