I show that carbon pricing can hurt green technology innovation due to firm financial constraints. I identify green technologies from patent filings through textual analysis of patent claims and construct a novel dataset that links firm green patenting to ownership of carbon-emitting plants. Focusing on firms with high emissions in California, I show that the California cap-and-trade program exacerbates financial difficulties in already constrained firms, forcing them to reduce R&D and, subsequently, green innovation. These effects offset the positive impact of cap-and-trade on green innovation in unconstrained firms, rendering the program less effective in stimulating much-needed green innovation. The results suggest that carbon pricing forces constrained firms to value their short-term cash flows more than the long-term cash flows from transitioning to green technology. 

Under the growing threat of patent trolls, high-tech firms face substantial legal fees, increased cash flow volatility, and greater expected costs of distress. I show that the exposure to patent litigation leads to overly conservative capital structures in high-tech firms. My identification exploits a 2017 U.S. Supreme Court decision limiting the ability of patent trolls to seek favorable venue outside the defendant’s incorporating state. Following the decision, firms incorporated in states with strong anti-patent troll laws increased leverage. Treatment effects are stronger for high-tech firms, the premier targets of patent trolls. Decreased cash flow volatility, especially in treated firms closer to financial distress, provides a key channel for my results.        

Inventors with heightened climate awareness produce more green innovation. We establish this by instrumenting climate awareness with the extreme weather event that impacts an inventor's neighboring towns but misses the inventor's residence. This serves as a plausible instrumental variable, as extreme weather events nearby raise city-level climate awareness, measured by the Google Search Index for climate change, but these neighboring disasters are unlikely to directly affect an inventor's productivity and career choices. Inventors produce more green innovation after experiencing near-miss extreme weather events and shocks to climate awareness. The impact of these shocks is greater when they occur at a firm's R&D hub and affect most of its inventors simultaneously.