Low-carbon innovation is increasingly recognized as a significant solution to carbon neutrality. This paper explores whether and how regulated parent firms influence low-carbon innovation outputs in their unregulated subsidiaries. Leveraging China’s regional emission trading scheme (ETS) pilots as a quasi-natural experiment, we identify the causal effect of low-carbon innovation spillover effects from ETS-regulated parent firms to their unregulated subsidiaries. Using the matched difference-in-differences identification strategy, we found that unregulated subsidiaries affiliated with regulated parent firms appear to have a better low-carbon innovation performance in terms of patent counts and citations compared with those similar unregulated subsidiaries affiliated with unregulated parent firms during the pre-and-post ETS periods. Such innovation spillover effects of China’s ETS is contingent on parent firms’ financial slack, top management teams’ experience, low-carbon knowledge stock, and geographical and technological proximities between parent firms and subsidiaries. Our findings have survived robustness checks on measurement errors, confounding factors, and alternative model specifications. Our study provides insights into the decarbonization strategy of promoting innovation through corporate ownership networks and the factors that make such a strategy more effective. We discuss our contribution to the intersection of sustainability and public policy in operations management research and provide suggestions to practitioners and policymakers.