Abstract: Innovation is a central part of economic growth.Existing theories elaborate on the causes and consequences of firm innovation,but less discuss the determination of the direction of firm innovation.How innovation decisions are made and whether the direction of innovation is steered are questions well worth answering.There is often a lack of incentives in the market for the production of high-cost,low-polluting technologies.Demand for cleaner technologies is always low.This is an important manifestation of market failure.Firms prefer the low-cost but highly polluting production technologies to the costly green production technologies.Relying on market forces alone cannot force enterprises to abandon highly polluting production technologies and switch to cleaner technologies.Strict environmental protection policies will help to reverse this market failure.China has gradually introduced four batches of inspections since July 2016,with each batch lasting one month,which is named Central Environmental Protection Inspectorate (CEPI).The policy not only raises the penalties for polluting behavior of enterprises in the system development,but also realistically supervises enterprise pollution,which effectively reduced pollution.The CEPI will have a twofold impact on enterprises’ innovation.One is to increase the relative cost of using polluting technologies for enterprises,forcing them to innovate in a green way.The second is to increase R&D investment in cleaner technologies,crowding out the R&D resources that firms invest in other technologies.This paper explored how the environmental regulation policy affects the direction of firms’ technological innovation,and found that the central environmental inspection policy changes firms’ innovation decisions.Firms always react to the change of costs and benefits.Under the strict environmental regulation policy,firms re-examined the benefits of adopting different technologies.That increased the demand for cleaner technologies,which spurred the effect of promoting innovation shifts.This paper firstly demonstrated the promotional effect of the environmental policy on the “Green Patents” with General DID.This paper secondly set other “non-green patent” that are not related to environmental protection as a control group.Environmental policy reversed the low demand for cleaner technologies in the market.The applications for “non-green patent” increased by 2.74% after the CEPI,while “Green Patents” increased by 3.39% more.Strict policies can reverse the problem of insufficient demand for clean technologies and inhibit the short-sighted behavior of enterprises blindly pursuing low-cost technologies. “Green Patents” had an overall lower output size than other “non-green patents” before the policy intervention,and this trend remained stable over the 21-month period before the policy intervention.After the policy intervention of the CEPI,this difference has changed significantly.The portion of “green patents” that was originally lower was gradually filled in,and the difference between the two gradually disappeared.In the long term,the effect of the central environmental protection inspections will remain in place until 2021.This suggests that short-term policy shocks can have a long-term impact after a period of effective implementation. At the same time,we also found that the shift in technological innovation brought about by environmental policies comes at a cost.In this paper,based on the semantic analysis of patent applications,the patents were categorized into six groups according to the remoteness of semantic similarity:95%~100%,75%~95%,50%~75%,25%~50%,5%~25%,and 0%~5%.The results showed that enterprises have adjusted their R&D allocation to meet the requirements of environmental protection inspections,squeezing out some of the R&D of other types of patents.More resources are allocated to environmental protection-related technologies,showing the “crowding out effect”.The cost of environmental protection inspections to reduce pollution is to force some patents to be replaced by cleaner technologies. This paper also did a comparative analysis using the IPC classification.The main conclusion that policy promotes innovation steering still holds when the IPC classification is used.However,in comparison,the innovation steering effect produced by policy is significantly higher when measured based on the text analysis method.The conclusions drawn from the method based on textual analysis were more reliable.Because some of the technologies of synergistic pollution reduction are not counted when counting green patents with the IPC classification method.In addition,applicants have a tendency to categorize technologies when applying for patents.Artificial categorization will bring about greater errors and deviate from the problem that the technology is actually intended to solve. This paper supplemented the robustness test on the definition method and observation window.Changing the way of defining green patents does not change the main conclusions.Narrowing the observation window to 2015 to 2018,the central environmental protection inspection policy can still lead to faster growth of green invention patents.In both the short and long term,the CEPI had led to a change in the cost-benefit relationship of technology,triggering a reorientation of corporate innovation. This paper adds new evidence to the benefits of environmental regulation and expects to inform policymakers’ decisions.This paper employs textual analysis to provide a new perspective for research related to innovation,hoping to avoid the deception and arbitrariness in the application of scientific and technological achievements.That will improve the accuracy and efficiency of the research on China’s innovation output.