The U.S. Regional Greenhouse Gas Initiative (RGGI) is a regional market-based regulatory scheme for reducing greenhouse gas emissions from the electric power sector in ten northeastern states. It promotes energy efficiency, renewable energy, direct energy bill assistance to citizens, and technological innovation. Conventionally, green innovation has been one of the most effective tools for reducing greenhouse gas emissions through energy efficiency, energy transitions, and renewable energy. Thus, this study measures the impact of the implementation of RGGI on the firms’ green innovation initiatives. We used 20 years of panel data from the Fortune 500 list of the United States' largest companies. Based on DID, a benchmark regression, the RGGI has a significant adverse effect on the green innovation of Fortune 500 companies, and we verified these findings with multiple robustness tests. As we investigated how energy-intensive industries were affected by RGGI, we found that it slowed down green innovation, but it was not statistically significant. This study provides a novel perspective on how the RGGI influences green innovation in firms and how different types of sectors respond to the policy. In terms of policy, we believe that a well-covered and differentiated legislation that fosters green innovation while being realistic about the policy's goal and the firm's environmental attitude, like emissions reduction through green innovation, is essential.