Binding inspired green innovation: Evidence from China's Top 1,000 energy regulation

This study examines the impact of a significant binding energy regulation in China's industrial sector-the Top-1,000 Enterprises Energy-Saving Program (Top 1,000 Program)-on the green innovation of regulated firms. Utilizing detailed firm-level data and a difference-in-differences research design, by leveraging the quasi-natural experiment of the Top 1,000 Program for key energy-consuming enterprises, we demonstrate the green innovation effects of binding energy regulation. We find that after the implementation of the regulation, the quantity of green innovations in regulated firms increases by 106 %-128 %, while the quality of green innovations improves by 110 %-146 %. Heterogeneity analysis reveals that the program exerts more pronounced innovation incentives on firms with higher barriers to production relocation, non-state-owned enterprises, firms with stronger capital intensity, and those with initially higher pollution levels. This study provides causal evidence at the micro-firm level supporting the applicability of the Porter Hypothesis in developing countries, thereby contributing to the ongoing debate on the role of environmental policy in fostering sustainable development.