Energy transition policy and green innovation quality

Although green innovation is crucial for sustainable development, the effectiveness of targeted environmental policies in driving corporate innovation quality remains unclear, particularly in the context of city-level energy transition initiatives. Despite growing research on environmental regulations and innovation, limited attention has been paid to how these policies interact with local environmental conditions and corporate governance structures to influence innovation outcomes. This study examines China's New Energy Pilot City Policy (NEPCP) to understand its impact on corporate green innovation quality through environmental pressure and economic incentives. Using data from 16,100 observations of Chinese listed companies between 2007 and 2021, we employ difference-in-differences analysis, complemented by parallel trend tests and propensity score matching. Findings reveal that NEPCP positively influences corporate green innovation quality, with stronger effects in eastern regions and low-pollution industries. Moreover, CEO compensation emerges as a positive moderator, while air pollution presents complex moderating effects. Regional heterogeneity analysis shows significant policy effectiveness in economically developed areas, suggesting the importance of local implementation capacity. These insights advance our understanding of environmental policy design, emphasizing the need for regionally tailored approaches and integrated corporate governance mechanisms for sustainable innovation.