Which carbon policies redirect innovation? Comparative evidence on policy instruments and policy mixes in China

This paper examines how different carbon-transition policy instruments and policy mixes are associated with the direction of firm-level innovation in the presence of non-green technological lock-in. Using patent data for Chinese A-share listed firms from 2003 to 2021, we first document strong path dependence: firms with larger stocks of non-green patents are significantly more likely to produce further non-green patents than to shift toward green innovation. We then compare four policy instruments—carbon emissions trading, low-carbon city pilots, vertical environmental management reform, and green loan interest subsidies—within a unified empirical framework. The results reveal clear differences in conditional associations across instruments. Carbon emissions trading, low-carbon city pilots, and green loan interest subsidies are associated mainly with the redirection of inherited non-green capabilities toward green patenting, whereas vertical environmental management reform is the only instrument associated with both reduced non-green innovation persistence and stronger green redirection. Policy-mix results show that focused combinations are associated with more consistent redirection effects, while broad policy bundling provides no clear additional gain, suggesting that complementarity and coherence matter more than the sheer number of instruments. These findings highlight the importance of instrument design, policy complementarity, and cautious interpretation of comparative policy evidence in innovation-led decarbonization.