In the context of globalization, environmental issues have become increasingly prominent, making green and sustainable development a focus of attention for governments worldwide. To facilitate this process, the Chinese government has formulated a series of forward-looking and strategic policies and measures. Among them, establishing a market-oriented green technology innovation system is seen as a crucial aspect. The establishment of this system aims to stimulate enterprises' innovation vitality, promote the research and application of green technology, and achieve a symbiotic relationship between economic development and environmental protection. Since 2002, China has piloted sulfur dioxide emission trading in economically developed cities with high sulfur dioxide emission pressure, such as Beijing, Tianjin, and Shanghai. This market-based strategy allows enterprises to buy and sell emission rights, aiming to reduce pollutant emissions, improve environmental quality, and stimulate industrial enterprises' investment in and research on green technology. After years of practice, this policy has played a vital role in achieving a win-win situation for environmental protection and the economy. As the backbone of the national economy and the core of the innovation system, industrial enterprises' attitude toward and investment in green patent research and development are directly related to the smooth implementation of the national sustainable development strategy. With the in-depth promotion of the emissions trading system, an increasing number of industrial enterprises have begun to attach importance to and participate in green patent research and development. This not only reflects the company's commitment to environmental responsibility but also demonstrates a keen insight into future market trends. Section 1 of this paper presents a literature review and theoretical analysis. The definition of green innovation, an essential means for industrial enterprises and society to pursue sustainable development, is disputed in academic circles. Regardless, the core goal of green innovation is to reduce environmental pollution and improve resource utilization efficiency. As an environmental management tool, emissions trading guides enterprises to reduce pollutant emissions through market mechanisms and promotes the research, development, and application of green technologies. The existing literature has extensively explored green innovation and its influencing factors. Some studies have posited that government policy incentives, market demand, technological innovation, and other factors are the key drivers of green innovation. However, as a policy tool, the impact mechanism of emissions trading on green innovation needs further study. Based on the literature review and theoretical analysis, this study proposes the following hypothesis: The emissions trading policy can promote green innovation activities of industrial enterprises. This hypothesis aims to explore how the emissions trading policy affects the green innovation behavior of industrial enterprises and the differences in this impact among different types of industrial enterprises. Section 2 discusses research methods and data sources. This study was based on the Chinese industrial enterprise database, combined with corresponding patent information, to construct a panel data set with rich information. The study period was from 1998 to 2021, covering multiple dimensions, such as the number and type of patent applications, ownership structure, age, internal financing ability, liquidity, scale, and industry competition of industrial enterprises. To accurately measure the degree of green innovation in industrial enterprises, we drew on Yuan Li et al 's method and refined and expanded it. The activity of green innovation was assessed by calculating the proportion of green patents applied for by industrial enterprises in all their patent applications that year. Simultaneously, considering the diversity of patent types, this study also included the proportion of green invention patents and green utility model patents in the analysis. The core explanatory variable of the study was the sulfur dioxide emissions trading pilot policy. To capture the effect of this policy on green innovation, this study constructed a product term of the pilot virtual variable and the time virtual variable. Through panel data analysis, combined with regression models and instrumental variable techniques, the study controlled for potential omitted variables and endogenous problems that could affect the research results. Section 3 presents empirical results and the results of a robustness test.