This study aims to examine the effect of the EU emissions trading system (EU-ETS) on corporations’ research and development (R&D) expenditure. The effect of the EU-ETS is estimated by combining the propensity score matching method with the difference-in-differences approach. We found that the EU-ETS had a strong positive effect on corporations’ R&D expenditure in the second and third phases, but only a limited effect during the first phase. Our estimation results are consistent with the Porter hypothesis that stricter environmental regulation promotes innovation.