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The trading of carbon emissions is a crucial regulatory method to address environmental pollution issues. This study takes China's carbon emission trading pilot policy established in 2013 as a quasi-natural experiment and uses the DID model to empirically test the urban panel data from 2006 to 2019. The results show that the carbon emission trading pilot policy can effectively reduce urban environmental pollution, and this effect is more noticeable in mid-western cities, northern cities, cities with fewer resources, and large-scale cities. In addition, to address the urban environmental pollution problem through this policy, the government is encouraged to raise its environmental protection awareness and put more effort into the innovation of technology. In general, this study uses carbon emission trading policies from China to confirm that market-based incentive environmental regulation tools can effectively reduce environmental pollution in urban areas. These findings can provide more theoretical support and empirical evidence for the government to use mechanisms of the market to effectively solve pollution problems, improve ecological environment quality, and accelerate the realization of green economy. • The DID model is used to track pilot policy impact on urban environmental pollution. • Carbon emission trading pilot policy can reduce urban environmental pollution. • The government's environmental awareness is the channel of action. • The government's technological innovation efforts are the channel of action. [ABSTRACT FROM AUTHOR]

Green innovation (GI) is increasingly recognised as an effective strategy for tackling climate change, mitigating environmental issues, and promoting sustainable development. Using panel data of the Chinese listed firms from 2007 to 2019, this study adopts the difference-in-differences approach to assess the impact of the green finance policy (GFP) initiated by the Chinese government in 2012 on the green innovation performance of firms. The findings reveal that the GFP significantly boosts the green innovation performance of heavily polluting enterprises (HPEs). Notably, this effect is more pronounced in state-owned enterprises and firms with high dependence on external finance. Compared with penalty-based regulations, incentive-based and voluntary environmental regulations demonstrate more significant moderating effects on the relationship between the GFP and green innovation performance for HPEs. We also identify improved efficiency in the usage of green investments as a potential mechanism through which the GFP enhances the green innovation performance of HPEs. Further comparative analysis shows that green enterprises can achieve simultaneous improvement in both the quality and quantity of green innovation, whereas HPEs predominantly exhibit enhancements in innovation quantity. To maximise the GFP's positive effects, it is recommended to facilitate more targeted bank lending towards HPEs to support their structural transformation. Additionally, the coordinated deployment of diverse environmental policy instruments is advised to exploit their synergistic effects. • This paper confirms the positive relationship between Green Finance Policy (GFP) and the green innovation. • We develop a novel machine learning approach to enhance the accuracy of variable measurements. • Firms with different ownership structure and external finance reliance are impacted differently by the GFP. • Both incentive-based and voluntary environmental regulations have positive moderation effects. • GFP can improve the green innovation by enhancing the green investment efficiency. [ABSTRACT FROM AUTHOR]