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Climate Policy Uncertainty and Green Technology Innovation: An Inverted U Relationship?

Author

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  • Tiantian Cui

    (School of International Trade and Economics, University of International Business and Economics, Beijing 100029, China)

  • Weixian Wei

    (School of International Trade and Economics, University of International Business and Economics, Beijing 100029, China)

  • Jianhua Huangfu

    (School of International Trade and Economics, University of International Business and Economics, Beijing 100029, China)

Abstract

Previous studies on the relationship between climate policy uncertainty (CPU) and green technology innovation (GTI) generally belong to one of two opposing schools of thought: real options theory and growth options theory. This study proposes that, according to prospect theory, a nonlinear relationship exists between these variables. Using panel data from Chinese A-share listed companies spanning 2010–2022, we empirically test this hypothesis. Results indicate an inverted U-shaped relationship between CPU and GTI, with moderate levels of CPU facilitating optimal GTI. As CPU intensity strengthens, there exists an appropriate threshold at which GTI reaches its peak. More importantly, moderation analysis reveals that firms’ internal capabilities—including risk-bearing capability, cash flow, operational capability, and marketing capability—significantly outperform external government support in moderating the CPU-GTI relationship. These findings provide valuable implications for firms’ climate risk management and climate policymakers’ policy formulation in advancing sustainable development goals.

Suggested Citation

  • Tiantian Cui & Weixian Wei & Jianhua Huangfu, 2025. "Climate Policy Uncertainty and Green Technology Innovation: An Inverted U Relationship?," Sustainability, MDPI, vol. 17(17), pages 1-22, September.
    • Handle: RePEc:gam:jsusta:v:17:y:2025:i:17:p:7986-:d:1742328
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