Quantity or quality? The impacts of environmental regulation on firms’ innovation–Quasi-natural experiment based on China's carbon emissions trading pilot

Abstract

Recently, research on environmental regulation and firms’ innovation has emerged in large numbers. However, the research on the impact of China's carbon emission trading system (CETS) pilot policy on innovation quality is really lack. In order to fill this gap, this paper uses the panel data of China's A-share listed firms in 2008-2016, and adopts difference in difference in difference (DDD) model constructs a quasi-natural experiment on the impacts of CETS on quantity and quality of innovation. The results show that the CETS has a significantly positive effect on the quantity and quality of innovation, but the impact of the CETS on the innovation quantity, low-quality innovation and high-quality innovation are decreasing in turn. The CETS only promotes the innovation quantity and high-quality innovation of state-owned shares firms, large-size firms and eastern-section firms. In addition, according to mechanism test, after the implementation of the CETS pilot, if the government simultaneously reduces subsidies to “treatment group” firms, it can not only enlarge the direct promotion effect of CETS on the quantity and quality of innovation, but also eliminate the offsetting effect of government subsidies on “compliance costs”, thereby Indirectly promote the improvement of the quantity and quality of innovation.