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Towards Sustainability: How Does Climate Policy Uncertainty Affect Regional Green Innovation in China?

Author

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  • Haoyang Lu

    (Department of Economics, University of Bath, Bath BA2 7AY, UK)

  • Alistair Hunt

    (Department of Economics, University of Bath, Bath BA2 7AY, UK)

Abstract

So far, the existing literature has examined the impact of climate policy uncertainty (CPU) on the green innovation (GI) of listed firms. However, there is still a lack of research on how climate policy uncertainty affects regional innovation compared to its impact at the firm level. In fact, green innovation is not solely driven by listed firms. Unlisted firms, government, and government-affiliated scientific research institutions also play a crucial role in the research, development, and promotion of green technologies. This paper examines the impact of climate policy uncertainty on green innovation based on panel data for 30 provinces in China from 2013 to 2021 using a fixed effects model. The study finds that moderate climate policy uncertainty promotes regional green innovation. However, further analysis reveals that when a region’s climate policy uncertainty is excessively high, it instead hinders green innovation. The mechanism analysis shows that climate policy uncertainty encourages government investment in innovation while constraining firms’ investment in innovation. Additionally, this paper finds that regional financial development can alleviate firms’ financing constraints, thereby mitigating the negative impact of climate policy uncertainty on firms. Financial development enhances the role of climate policy uncertainty in promoting regional green innovation. The findings of this paper provide a basis for the government if it designates climate policies to promote the realization of green innovation. At the same time, this study also puts forward policy recommendations to improve financial policies and strengthen government support in order to promote the process of green technology research and development, marketization, and industrialization, and to promote the green transformation and sustainable development of China’s economy.

Suggested Citation

  • Haoyang Lu & Alistair Hunt, 2025. "Towards Sustainability: How Does Climate Policy Uncertainty Affect Regional Green Innovation in China?," Sustainability, MDPI, vol. 17(7), pages 1-27, March.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:7:p:2857-:d:1618927
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