The Chinese government has introduced stricter environmental regulations to address the rapid increase in Greenhouse gas (GHG) emissions and environmental deterioration associated with energy demand. In this research we analyze the potential environmental and socio-economic benefits of introducing such regulations coupled with the promotion of advanced technological innovation for power generation. We selected Chongqing city, one of the most polluted cities in China, as the case study. The study proposes 5 scenarios that range from baseline to technology promotion through the introduction of carbon tax and subsidy schemes and the implementation of regulations for regional air emissions reduction. We constructed a dynamic evaluation model based on an Input-Output (I/O) analysis for the period 2010-2025. The results show an overall benefit on the quality of the environment and energy conservation efforts. The study demonstrates that the introduction of regulations without promotion of technological innovation will dramatically affect economic growth. The results also show that innovations in the energy sector alone will reduce both air pollutants and energy intensity to a certain extent. In this regard the promotion of innovation in other economic sectors is necessary. Another important finding is the fact that the introduction of regulations will actually curb air emissions and energy consumption. This research provides a strong platform for policy makers to realize the urgency and importance of promoting technology innovation through environmental regulations.