Environmental Justice, Local Governance and Corporate Green Innovation : Quasi-Experimental Evidence from the Establishment of Environmental Courts in China

In this paper, we investigate whether and how environmental justice influences climate mitigation and adaptation technologies. We exploit the staggered establishment of environmental courts in China as a quasi-natural experiment that strengthened environmental justice and authoritative regulatory system independence to examine the interaction between local governments and firms’ green innovation productivity. Using a sample of heavily polluting firms, we find that treatment firms significantly increased their green innovation productivity after the establishment of environmental courts relative to their counterparts. The main explanation of our findings is that environmental courts increase authoritative judicial constraints on local governments, break the collusion between local governments and firms under local protectionism, and in turn induce local governments to guide heavily polluting firms to optimize their green innovation structure through incentive and constraint mechanisms. Furthermore, we find that environmental courts play a major role in stimulating green patenting productivity in firms with lower risk-bearing capacity, higher green agency costs, and state-owned firms. We also find that green patents applied independently are more sensitive to the establishment of environmental courts than jointly applied green patents. However, corporate green R&D efficiency does not improve after the establishment of environmental courts. Overall, we uncover that environmental justice strengthening is one of the effective mechanisms that can be used to promote a just transition toward a low-carbon green economy