**1. Introduction**

In recent years, global economic development began facing severe challenges, so economies are seeking new drivers for economic growth. Innovation is considered an important means to break through the bottlenecks and shape new advantages in economic development. In the meantime, economic development resulted in serious environmental pollution problems all over the world. To balance environmental protection and sustainable economic development, the ability to innovate green technologies is seen as a potential solution. Green technology innovation refers to an economic behavior that emphasizes environmental performance improvement and can effectively balance economic development and ecological protection issues. Hence, with the increase in the challenges of resources and the environment, it is essential to promote the development of a green economy by promoting green technologies [1–3]. The sustainable development can thus be achieved through the innovation and progress of green technology [4]. Green technologies raised public attention in both academics and industry.

In the 2000s, Porter and Van Der Linde [5] proposed that environmental regulation can reduce the pollution caused by enterprises and incentivize enterprises to innovate to make up for the cost of pollution. Since then, a number of studies explored the relationship between environmental regulation and innovation from the perspectives of different industries, regions, and countries [6]. The Porter hypothesis is examined in developed economies [7,8], but it remains unclear whether it applies to emerging economies. Lanjouw and Mody [9] argued that environmental regulation in emerging economies cannot enhance domestic investment in pollution control technologies or green patents. Instead, it may increase the probability of importing green technology from advanced economies and strengthen foreign patents. It is, therefore, still worthwhile to investigate whether the environmental regulation has a significant impact on green innovation and provide a rigorous theoretical analysis and causal identification framework to test the impacts.

As an emerging economy, China's rapid economic development brought numerous forms of material national wealth. However, it brought a series of environmental problems, such as resource shortage, environmental pollution, and ecological deterioration, which became a public concern. To address these issues, the Chinese government took several environmental regulatory measures. However, we still have little knowledge about whether these regulatory measures have a positive effect on regional technological innovation, especially green innovation capacity. To fill in the gap, this study aims to examine and provide a robust estimation on the impacts of environmental regulation on green technology innovation within the Chinese context. Specifically, we focus on the "Two Control Zones" (TCZ) policy carried out in 1998, which was the first regulation policy for air pollution in China.

To control acid rain and sulfur dioxide pollution effectively, the Chinese government approved and implemented the "Two Control Zones" (TCZ) policy in 1998. The two control zones include the acid rain control zone and the sulfur dioxide control zone. In particular, the acid rain control zone is the region where the average pH value of rainfall is less than or equal to 4.5; the sulfur dioxide control zone is the area where the average sulfur dioxide concentration exceeds the national secondary standard of the past three years. The total area of the two control zones accounts for 11.4% of the total area of the national territory, the total population of the two control zones accounts for about 39% of the country's population and the GDP accounts for 67%, indicating a wide coverage of the impacts of the "two control zones" policy. The cities on the list of the two control zones are subject to strict environmental regulation, including restrictions on high–energy consumption, use of heavy–polluting energy sources, and sulfur dioxide emissions.

In our study, we are interested in whether and how the TCZ policy affects green technology innovation. To provide a robust estimation, we apply our analysis to a city– level panel data set from 1997 to 2016 in China, and examine the effects of environmental regulation policies on green innovation, considering the implementation of TCZ policy as a quasi–natural experiment. We apply a DID model, which is considered as the most effective model for policy evaluation. We find that the TCZ policy effectively increases the number of green patents of cities in the two control zones. In particular, the TCZ policy has a significantly positive effect on the quantity and structure of human capital, including the number of inventors of patents and green patents, the ratio of incumbents and newcomers, and the percentage of population with higher education levels. The effects are heterogeneous, that is, the TCZ policy has a greater impact on the number of green patents of cities in the two control zones where there are more R&D bases and more foreign investment.

To our knowledge, our study makes three main contributions to the literature: (1) This study is among the first to investigate the effects of TCZ policy on green technological progress from the perspective of environmental regulation–influenced regions; (2) we apply a DID technique to address the potential endogenous issue arising from omitted variables. It provides reliable and robust empirical evidence for analyzing the impacts of the environmental policy of TCZ on green technological progress; (3) we examine the mechanism of environmental regulation policy impacting the green technology innovation from different perspectives of human capital. It provides a new perspective to explain how environmental regulation policy affects green technology innovation. In addition, the heterogeneous effects of environmental regulation on green technological innovation are examined in terms of R&D base and foreign investment, thus revealing the comprehensive impacts of environmental regulation on green technological innovation.

The remainder of the paper is organized as follows: Section 2 presents a literature review and theoretical analysis, Section 3 presents the data and empirical design, Section 4 reports the empirical results, followed by the discussion in Section 5, and Section 6 concludes.
