Empirical analysis shows an inverted U relationship between climate policy uncertainty and green technology innovation, suggesting optimal innovation at moderate uncertainty levels.
Previous studies on the relationship between climate policy uncertainty (CPU) and green technology innovation (GTI) generally belong to one of two opposing schools of thought: real options theory and growth options theory. This study proposes that, according to prospect theory, a nonlinear relationship exists between these variables. Using panel data from Chinese A-share listed companies spanning 2010–2022, we empirically test this hypothesis. Results indicate an inverted U-shaped relationship between CPU and GTI, with moderate levels of CPU facilitating optimal GTI. As CPU intensity strengthens, there exists an appropriate threshold at which GTI reaches its peak. More importantly, moderation analysis reveals that firms’ internal capabilities—including risk-bearing capability, cash flow, operational capability, and marketing capability—significantly outperform external government support in moderating the CPU-GTI relationship. These findings provide valuable implications for firms’ climate risk management and climate policymakers’ policy formulation in advancing sustainable development goals.
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Cui et al. (2025) studied this question.
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