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Structural, Innovation and Efficiency Effects of Environmental Regulation: Evidence from China’s Carbon Emissions Trading Pilot

Cenjie Liu, Chunbo Ma and Rui Xie ()
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Cenjie Liu: Hunan University
Chunbo Ma: University of Western Australia
Rui Xie: Hunan University

Environmental & Resource Economics, 2020, vol. 75, issue 4, No 3, 768 pages

Abstract: Abstract Conventional wisdom argues that environmental regulation can trigger both structural adjustments and enhanced innovation. We test this conjecture by using a difference-in-differences approach to analyze the impacts of China’s carbon emission trading (CET) pilot policy on energy consumption. We find that compliance with the CET regulation has triggered statistically significant adjustments in energy structure, industrial structure, and technological innovation. Adjustments in industrial structure also contribute to enhanced total factor energy efficiency, whereas increased technological innovation has mixed effects on energy efficiency. We show that in the short run, government-led innovation does not immediately contribute to improvement in energy efficiency, whereas enterprise-led innovation has a negative impact. It indicates that CET regulation can affect energy efficiency through industrial structure and technological innovation. Overall, our results provide new evidence for the strong version of the Porter hypothesis. Our results also provide strong scientific support for China’s recent transition towards market-based carbon mitigation strategies.

Keywords: China’s emission trading; Total factor energy efficiency; Porter hypothesis; Difference-in-differences (DID); Difference-in-difference-in-differences (DDD) (search for similar items in EconPapers)
JEL-codes: Q54 Q56 Q58 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10640-020-00406-3

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