Environment taxes spur green tech innovation

Since the reform and opening up, China's previous extensive model has caused serious environmental pollution. To deal with the worsening pollution problem, China piloted the implementation of the pollutant charge fee system in 1979. However, there are some problems in the implementation of the system, such as low emission collection standards, insufficient rigidity of law enforcement and lack of standardization, which greatly reduce the effectiveness of . In order to overcome the disadvantages of the system and more effectively implement the concept of green development, the Chinese government introduced an environmental protection tax on January 1, 2018, which is the first separate tax law for environmental protection in China. As a more coercive and executive instrument of environmental regulation, the environmental protection tax plays a positive role in forcing enterprises to transform and upgrade, promoting the adjustment of economic structure and development mode to the intensive type and realizing green development. It cannot be ignored that the environmental protection tax may affect the innovation of enterprises by affecting the investment cost of enterprises. The improvement of green total factor productivity is the fundamental way to solve the problem of the dual pressure of environmental protection and economic growth in China, and the improvement of green productivity mainly depends on the green technological innovation of enterprises [1]. So how does the introduction of the environmental protection tax affect the green innovation of enterprises? Is the effect positive or negative? Is there heterogeneity in this effect? An in-depth study of the impact of environmental protection tax on enterprises' green innovation is not only conducive to exploring the "win-win" model of economic development and environmental protection, but also of great significance in promoting enterprises to achieve green transformation. Environmental protection tax is a typical tool for environmental regulation, while at present there are differences in the research conclusions on the role of environmental regulations on enterprises' green innovation. The traditional view of the neoclassical school of economics holds that the imposition of environmental protection tax will increase the costs of enterprises and reduce the profits of them, which will hinder the innovation activities of enterprises. Using the Chinese Carbon Trading Pilot Policy as a quasi-natural experiment, C et al. [2] found that this environmental regulation policy reduces enterprises' economic performance, thereby reducing the R&D investment, making overall enterprise technology innovation weaker. The empirical results of Stucki et al. [3] suggest that environmental laws and regulations will reduce the innovation tendency of enterprises if taxes and regulations cannot generate additional demand. However, the Porter Hypothesis [4] holds that the appropriate environmental regulation will stimulate the green technological innovation of enterprises, because the economic results of the green technological innovation of enterprises can offset the cost of environmental tax and compensate for the input of green innovation, thus increasing the profits of enterprises. Acemoglu et al. [5] believe that proper environmental regulation tools can achieve enterprises' green technology innovation, supporting the Porter Hypothesis. Peng et al. [6] found that environmental regulations enhances the enthusiasm of enterprises for green innovation and thus promotes green innovation behavior. The research of Zhang et al. [7] and Hu et al. [8] also show a positive relationship between environmental regulation and green innovation. But beyond that, some scholars believe that the impact of environmental regulation on corporate innovation is uncertain or not obvious [9,10]. In this paper, we argue that the reason for the dispute is that the influence of environmental taxes and fees on enterprises' green innovation is the result of the combination of the crowding out effect and the anti-driving effect, while the extent of them is uncertain. To answer the above questions and test the net effect of environmental protection tax on enterprises' green innovation, this paper constructs a three-sector model including consumers, producers and government based on Yu Pang's research [11] and theoretically analyzes the relationship between environmental protection tax and enterprises' green innovation. On this basis, this paper takes the Chinese A-share listed companies in heavily polluting industries from 2012 to 2021 as a sample, and uses the double difference model to test the net effect of environmental protection tax on enterprises' green innovation. The results show that: (1) the environmental protection tax significantly improves the level of enterprises' green innovation, and the conclusion is still significant after parallel trend test, PSM, replacement of explained variables and so on. (2) The influence of environmental protection tax on green innovation of enterprises is heterogeneous, which plays a positive role in state-owned enterprises, mature enterprises and enterprises located in areas with high level of marketization, but it plays an inhibiting role in growing enterprises and enterprises in areas with low level of marketization. In non-stated-owned enterprises and enterprises in recession period, the impact of environmental protection tax on the level of enterprises' green innovation is not significant. The following are this paper's marginal contributions: First, it enriches the theoretical framework of environmental protection tax. By building a theoretical model, we derive the conditions under which the environmental protection tax encourages green innovation in enterprises. Most of the existing research examines the influence of environmental protection taxes on corporate green innovation from an empirical perspective, but few do so from the perspective of theoretical modeling. Second, it broadens research into the economic effects of environmental protection taxes. The existing findings are mostly concerned with environmental governance and corporate environmental investment, with little attention paid to the influence of environmental levies on green innovation at the micro-level. Third, it optimizes the method for measuring the effect of environmental protection tax. The paper develops a double difference model based on the quasi-natural experiment of "Environmental Protection Fee to Tax" in China, which effectively alleviates the endogeneity problem of reverse causation in OLS empirical study. Fourth, it improves the accuracy of the study of the effect of an environmental protection tax. In this study, we focus on heavily polluting enterprises, the core target group of the environmental tax, and further explore the impact of the environmental tax on heavy polluters with different ownership, life cycle status and located in different marketization regions, providing empirical evidence for the government to clarify the impact of the environmental tax as a regulatory instrument and provide more targeted environmental protection policies. As a market-incentivized environmental regulation strategy, environmental protection taxes encourage heavily polluting enterprises to fulfill their environmental duties and accelerate their green transformation. Using a sample of A-share listed firms in heavily polluting industries from 2012 to 2021, this research gives an empirical examination of the influence of environmental protection tax on the level of green innovation in heavily polluting enterprises. The following are the key findings: The implementation of environmental protection taxes promotes heavily polluting enterprises to advance green technologies. The impact of environmental protection taxes on heavily polluting firms' green innovation is exerted through the "anti-driving effect," in which an increase in environmental management costs encourages enterprises to boost R&D investment, hence improving their green innovation level. Further research reveals that the promotion effect of environmental protection taxes on green innovation of heavily polluting enterprises exists significantly in state-owned enterprises, mature enterprises, and enterprises in regions with high level of marketization, but is insignificant for non-state-owned enterprises and enterprises in recession period and inhibits enterprises in growing period and those in regions with low level of marketization. Based on the above conclusions, the policy significance of this research mainly lies in the following: First of all, preferential tax policies should be further improved. The heavily polluting enterprises carrying out green innovation activities will generally face relatively great financial pressure. The government should make full use of proper preferential tax policies to increase the benefits of green innovation in heavily polluting enterprises while collecting environmental taxes, especially to reduce the tax burden of enterprises that develop low carbon, energy saving and new energy products. Secondly, it is necessary to strengthen the financial support for green innovation. Capital is one of the crucial factors influencing the level of green innovation in enterprises. It is suggested that special management of environmental tax should be carried out, and the revenue of environmental tax should be exclusively used for environmental pollution control and financial support for enterprises to develop environmental friendly technologies and projects. Finally, the government should strengthen the supervision of environmental tax and evaluate its implementation effect. The government should attach importance to the collection and management of environmental tax, implement the policy of environmental tax reduction and exemption in earnest, and constantly improve the environmental tax system, in order to maximize its incentive effect on green innovation of heavily polluting enterprises.