Coupling environmental policy with supply- or demand-side interventions : impacts on three-dimensional performance

With global efforts to achieve carbon neutrality, balancing economic development with sustainable energy transitions remains critical, prompting governments to prioritize green innovation for both environmental and economic gains. However, reliance on environmental policies alone often leads to market-level spillovers resulting in potential risks of higher overall energy consumption, highlighting the need for cross-instrumental policy mixes. This study addresses gaps in existing research by developing a tripartite evolutionary game model involving governments, regulated firms, and unregulated firms to analyze how policy mixes - environmental regulations coupling with supply-side or demand-side interventions - affect green innovation, environmental, and economic performance. Key findings reveal that while both policy mix types can stimulate green innovation, crowding-out effects are observed only when environmental policy is combined with demand-side interventions, where the green innovation efforts of unregulated firms fail to sufficiently reduce energy consumption due to output spillovers. In comparing the complementary effects, with both types of firms adopting green innovation strategies, demand-side interventions yield higher environmental and economic complementary effects, whereas supply-side interventions only result in environmental complementary effects. Optimal policy intensity thresholds and adjustment strategies are identified to avoid crowding-out risks while maximizing complementary effects, with recommendations to cope with potential policy failures. Practically, this study provides insights for local policymakers in formulating adaptive strategies for instrument selection and intervention intensity across diverse scenarios. Future research should refine classifications of green innovation, incorporate supply-chain dynamics, and expand market competition analyses to enhance policy design robustness.