Taking China’s emission trading system (ETS) pilot in 2013 as a quasi-natural experiment, this paper uses the difference-in-differences (DID) models to study whether the regional pilot ETS can promote technological innovation in enterprises. In addition, this paper examines the influence mechanism of the ETS innovation effect, with a focus on three key dimensions of the carbon market efficiency: market price effectiveness, market product diversity, and market order normativity. The results show that the pilot ETS has significantly promoted the technological innovation of regulated enterprises, specifically, 1.405*** for the total R&D investment, and 2.783*** for the number of patent applications. Moreover, the regional carbon price has a positive moderating effect on the innovation effect of ETS. Meanwhile, the innovation effect is more significant when the gap between the carbon price and the marginal abatement cost (MAC) of CO₂ is smaller, when the carbon financial derivatives are more abundant, or when the local market supervision is stronger. This study provides empirical evidence for the improvement of the national unified market and provides useful policy implications for developing countries to design ETS suitable for their national conditions.

Based on the implementation of China’s new Environmental Protection Law (the new EPL), using the difference-in-differences (DID) method and the PSM method, this paper examines the impact of changes in local environmental governance motivation on corporate environmental protection investments before and after the implementation of the new EPL. The results show that, before introducing the new EPL, the scale of green investment of politically connected enterprises was significantly lower than that of other enterprises; after the introduction of the new EPL, the increase in environmental protection investment by politically connected enterprises was significantly higher than that of other enterprises. This promotion effect is more potent for formally politically connected enterprises. Given this, we suggest that governments need to achieve fair law enforcement of environmental protection and avoid the distortion of ecological protection investment by political connections during economic transitions.