Carbon Price Certainty and Green Innovation: Evidence from Canada’s Federal Backstop Policy

Alberta’s adoption of the federal carbon pricing backstop in 2019 provides a natural ex- 2 periment to disentangle whether firms respond to policy certainty (credible long-term 3 commitments) or price-level effects (actual carbon costs). Using a within-firm difference- 4 in-differences approach combined with nine alternative identification strategies on 1,381 5 firms over 2004–2023, we test responses to three distinct policy events across a unified 6 segmented specification. Our core findings: (1) green patenting is modest at announcement 7 (2.38, not significant), peaks at legislative clarification (5.50, p = 0.026), and is small at 8 implementation (1.03, not significant), totaling about nine additional patents by 2019+, 9 implying that policy detail—not initial news or price imposition—drives innovation; (2) 10 emission intensity improvements emerge early at announcement and strengthen through 11 implementation; (3) within-firm DiD shows green patent applications increase by 14.11 12 units (17% relative to baseline) post-2019; (4) emission intensity decreases by 185.24 units 13 (28% reduction); but (5) absolute emissions do not decline significantly due to 28.6% output 14 expansion offsetting efficiency gains. We conclude that policy design matters: firms respond 15 to specific policy milestones, but carbon pricing alone cannot achieve absolute emission 16 reductions without output restrictions.