Can new energy policy promote corporate total factor energy efficiency? Evidence from China's new energy demonstration city pilot policy

In recent years, many new energy policies have been implemented globally to encourage the use of renewable energy, promote energy efficiency, and facilitate sustainable social development. It is important to examine whether such policies have achieved their objectives. Taking China's new energy demonstration city (NEDC) pilot policy as a quasi-natural experiment, this study examines such a policy's effect on corporate total factor energy efficiency (TFEE) with a difference-in-differences approach and a listed energy-intensive firms sample during 2007–2022. Our benchmark and several robustness tests show that NEDC promotes TFEE of energy-intensive firms. Besides, additional tests show that: a) the policy effect emerges and continuously increases three years after the enforcement; b) technological innovation, measured by research and development (R&D) investment, is an important channel for how NEDC promotes firm TFEE; c) the policy effect is evident only when the firm's ROA exceeds the threshold value. Further analysis shows that firms with higher profitability can increase R&D investments to promote their TFEE; d) the NEDC has significant heterogeneous effects on different types of firms' TFEE. Our above findings not only prove the effectiveness of the NEDC on firm's TFEE but also reveal appropriate measures policymakers should undertake to enhance the policy effect.