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This study investigates the causal relationship between technology innovation and carbon emissions based on data from firms participating in the Korean Emission Trading Scheme (KETS). It is considered that the dynamics of firm innovation and environmental performance vary by industry group because each industry utilizes a different production process and carbon reduction ability. Therefore, in this study, the causal relationships between innovation and emissions are analyzed and compared by industry based on the panel vector error correction model (VECM) and the fully modified OLS procedures (FMOLS). The results show that innovation activities play an important role in promoting the environmental performance of firms at the 5% significance level in the long -run. On the other hand, a firm's sales that represent production activities increase carbon emissions both in the long and short-run. Comparative analysis between industries confirms that the dynamics vary by industry. R&D investments have a significant effect on carbon emissions reduction in the energy industry in the short run, but in the high technology industries such as semiconductors and electronics, environmental regulation plays an important role in inducing technological progress in the short run. [ABSTRACT FROM AUTHOR]