The road to hell is paved with good intentions: How does the construction of low-carbon cities affect corporate low-carbon technological innovation in manufacturing?

Low-carbon technological innovation (LCTI) is crucial for decarbonization and global climate change mitigation. Taking China's Low-carbon City Pilot (LCCP)—a pioneering exploration for low-carbon development through policy innovation—as an exogenous policy shock, this study utilizes a staggered difference-in-difference-in-differences model and the data of China's manufacturing firms to examine the causality between the voluntary carbon regulation and LCTI. For the first time, the results indicate that the LCCP enactment significantly hinders corporate LCTI, contradicting the predictions of the Porter hypothesis. Mechanism analysis reveals that under the LCCP framework, local governments are authorized to design innovative policies tailored to their specific conditions and are responsible for their own assessment. Using a two-stage LLM-based approach to construct a climate policy uncertainty perception index, we confirm that this “bottom-up” approach introduces significant policy uncertainty faced by firms and weakens their motivation for LCTI involvement. Furthermore, the compliance costs associated with the policy crowd out the funds for LCTI, further hindering firms from engaging in LCTI. Heterogeneity analysis indicates that the adverse impact is more evident among firms exhibiting high risk aversion, ones with high artificial intelligence (AI) technology exposure, ones situated in non-resource-based cities, and state-owned ones, and that the adverse impact is significant for emission reduction technologies and zero-carbon technologies, but not for negative-carbon technologies. Additionally, all three pilot batches negatively impact corporate LCTI, suggesting that institutional modifications have not led to intended positive outcomes. This empirical research offers novel evidence regarding the efficacy of the LCCP and yields valuable policy insights—stable policy expectations and robust supervision mechanisms are crucial for achieving policy goals.