Descriptive statistics.

As carbon emissions in China continue to rise and the cost advantage in the global value chain diminishes, enterprise transformation and upgrading has emerged as a new engine for economic growth. By implementing low carbon incentive policies, the government aims to spur corporate self‑innovation and phase out obsolete capacity, thereby boosting resource use efficiency and curbing environmental pollution. This paper examines the impact of China’s low carbon incentive policies on enterprise transformation and upgrading, with a particular focus on the role and mechanisms of urban environmental policy in this process. Employing a multi-period difference in differences approach, we analyze how the low carbon city policy affects the transformation and upgrading of Chinese listed firms. The results show that the low carbon city policy significantly enhances enterprise transformation and upgrading at the 1% level: participation in the low carbon city policy raises the composite index of enterprise transformation and upgrading by 0.012. We further explore the moderating role of enterprise green development level by incorporating it into our model of low carbon city policy effects. The findings reveal that firms exhibiting higher green total factor productivity, as well as those adopting green innovation and green management practices, display stronger adaptability to the low carbon city policy. Finally, both heterogeneity and dynamic analyses indicate that, over the medium to long term, the low carbon city policy continues to promote enterprise transformation and upgrading. In sum, the low carbon city policy not only provides exogenous momentum for enterprise transformation and upgrading but also interacts synergistically with firms’ green development to guide them toward more efficient and sustainable transformation and upgrading.