Low-carbon city pilots (LCCP) is a key policy for realizing emission peak and carbon neutrality in China, using China’s samples from 280 towns from 2006 to 2016. The article utilizes PSM-DID, mediated effects, and moderating effects approach for validating a CO₂ reduction effect, mechanisms, and synergistic elements of LCCP. The regression outcomes suggest that (1) LCCP significantly decreases CO₂ emissions levels and average annual carbon emissions in LCCP fall by 2.6 percent. (2) LCCP focus on reducing carbon emissions by increasing R&D investment, the efficiency of energy, and decreasing the high CO₂ emissions industry. Among them, the reduction of the high carbon emission industry is mainly FDI, while the reduction of local industry is not obvious. (3) LCCP’s carbon reduction effects suggest a reversed U-shape relationship with city size. Digitalization and marketization of LCCP are crucial to the carbon reduction effect. Carbon reduction and pollution reduction have a strong synergistic effect.

The potentially serious economic consequences of China’s severe air pollution problem cannot be overlooked, especially the impact on corporate innovation, which is a core driver guiding firms towards efficient and high-quality development. This paper explores the direct effect and mechanism of PM2.5 on firms’ innovation output through the identification strategy of instrument variable. Based on the data of Listed Companies in China from 2003 to 2016, we used thermal inversion as the instrument variable for PM2.5 for estimation. The results show that each 1 ug/m³ increase in PM2.5 concentration causes an average reduction in innovation output of listed companies by about 7.0%. The test of “Porter hypothesis” shows that environmental regulation has not encouraged firms to innovate more. We further used the 2013 China Social Survey (CSS) data to verify the human capital mechanism of PM2.5 affecting firm innovation at micro level. The results show that PM 2.5 deteriorates the healthy human capital in a firm, which reduces the innovation output. This article helps to understand the relationship between air pollution and firms’ innovation and to develop appropriate policies.