Considering that Canada joined and then withdrew from the Kyoto Protocol, we assess the impact of the dynamics of Canada's environmental policy on the general innovation and environmental innovation of oil and gas firms. This study compensates for the shortcomings of the Porter hypothesis, which features no discussion of the influence of a loosened environmental policy on innovation. We highlight that the quantity and quality of innovation can be measured using the numbers of patents and citations of patents as proxy variables. We find that the dynamics of Canada's environmental policy have an asymmetric impact on oil and gas firms' innovation; strict policy promotes firm innovation and loose regulation reduces firm innovation, with the positive effect of strict policy being stronger than the negative effect of loose policy. In addition, environmental policy has a strong impact on environmental innovation. A loosened environmental policy increases the number of environmental patents but reduces the number of citations of environmental patents.
Keywords: Environmental policy; Firm innovation; Oil and gas industries in Canada.
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