This study investigates corporate financing responses to environmental policy by examining the impact of China's emissions trading scheme (ETS). Using a difference-in-differences method, we find evidence that the ETS incentivizes firms to expand their financial bases for innovation rather than operational activities. Interestingly, these effects are mainly observed among financially constrained, high-polluting firms. We investigate the underlying reasons for this heterogeneity, explore their sources of financing, and analyze the consequences of their financing responses. We find no systematic changes in bank loan or bond debt but observe a greater reliance on trade credit, a more conservative dividend policy, and increased tax avoidance. We observe productivity improvements but higher liquidity and default risks. Our study highlights notable distinctions in corporate financing responses across diverse environmental policies, reveals the active pursuit of alternative financial resources to support innovation efforts, and provides insights for policymakers driving the green transition.