This study explores the relationship between climate change regulation and corporate low-carbon innovation outputs. After the implementation of the Greenhouse Gas Reporting Program (GHGRP), a regulation requiring corporate greenhouse gas emissions disclosure, we observe a significant 6% increase in the count of climate patents and an 18% increase in the value of climate patents for firms with higher inefficient CO2 emissions, demonstrating their commitment to climate change mitigation and sustainability. The adoption of climate change mitigation technologies results in a substantial reduction of estimated CO2 emissions for these firms. The growth of corporate climate innovation is driven by external pressure, including firms with stricter environmental regulations and more climate change mitigation-oriented analyst coverage. Firms with higher inefficient CO2 emissions are more likely to have ESG compensation policies after the regulation. Evidence suggests that firms incorporate the sustainability value when they face external pressure of social responsibility.

Abstract i
Acknowledgements ii
Table of Contents iii
1. Introduction 1
2. Data and Sample Construction 6
2.1 The Greenhouse Gas Reporting Program (GHGRP) 6
2.2 National Emissions Inventory Data and CO2 Estimation 8
2.3 Patents Related to Climate Change Mitigation 9
2.4 Summary Statistics 12
3. Empirical Results 13
3.1 Baseline Results 13
3.2 Dynamic Regressions 15
3.3 Placebo Tests 16
3.4 Emissions 17
3.5 Alternative Explanations 18
4. Channels 19
4.1 EPA Regulatory Stringency 19
4.2 Climate Change Mitigation Oriented Analyst Coverage 21
4.3 ESG Compensation 23
5. Market Reaction 24
6. Conclusions 24
References 26
Figure 1 Timeline of GHGRP 31
Figure 2 Estimated CO2 vs. Real CO2 Reporting in 2011 32
Figure 3 Parallel Trend Plots 33
Figure 4 Placebo Tests 35
Table 1 Summary Statistics 37
Table 2 Baseline Results 40
Table 3 Placebo Tests 41
Table 4 Estimated CO2 Emissions 42
Table 5 High Patent Value Increase and Estimated CO2 Emissions 43
Table 6 Channels – EPA Regulatory Stringency 45
Table 7 Channels – Climate Change Mitigation Oriented Analyst Coverage 47
Table 8 Channels – ESG Compensation 49
Table 9 Market Value 50
Appendix A Variables Definition 51
A. Data and Matching Details 54
A1. NEI Database 54
A2. CO-to-CO2 Conversion 55
B. Robustness 58
C. Keywords in Climate Patents 61
Figure A1 Data Download 62
Figure A2 National Organization File 63
Figure A3 National Facility File 64
Figure A4 Source Classification Codes (SCCs) 65
Figure A5 Examples of CO Emission Factors 65
Figure A6 Examples of CO2 Emission Factors 65
Figure A7 GHGRP Report Verification Process 66
Figure A8 Parallel Trend Plots 67
Table A1 Robust – Patent Citations 68
Table A2 Robust – Scale by Assets Rather than Sales 69
Table A3 Robust – Drop Firms Do Not Have Climate Patents From 2006 to 2012 70
Table A4 Robust – Extensive Margin 71
Table A5 Robust – The EPO's “Y02-Y04S” Tagging Scheme 72
Table A6 Robust – Inverse Hyperbolic Sine Transformation 74
Table A7 Robust – Patent Citations of EPA Regulatory Stringency 76
Table A8 Robust – Patent Citations of Climate Change Mitigation Oriented Analyst Coverage 78
Table A9 Robust – Real CO2 Emissions After 2010 80
Table A10 Robust – High Patent Value Increase and Real CO2 Emissions 81
Table A11 Robust – Excluding Firms with High Foreign Income 83
Table A12 Robust – Adding Industry-Year Fixed Effects 85
Table A13 Robust – Inclusion of Inefficient Emitter and GHGRP Dummies 87
Table A14 Robust – Treatment (60th percentile) vs Controls (40th percentile) 89
Table A15 Robust – Climate Patent Ratio 91
Table A16 Robust – 10-K Text-based Network Industry Classifications (TNIC) 93
Table A17 Channels – Option Trading Volume: Count and Value 95
Table A18 Channels – Option Trading Volume: Citation 97
Table A19 Keywords 99
Table A20 Summary Statistics of Texted-based Y02 Climate Patents 101
Table A21 Results of Text-based Climate Patents 102

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