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

Author

Listed:
  • Cenjie Liu

    (Hunan University
    Hunan University of Finance and Economics)

  • Chunbo Ma

    (University of Western Australia)

  • Rui Xie

    (Hunan University)

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.

Suggested Citation

  • Cenjie Liu & Chunbo Ma & Rui Xie, 2020. "Structural, Innovation and Efficiency Effects of Environmental Regulation: Evidence from China’s Carbon Emissions Trading Pilot," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(4), pages 741-768, April.
    • Handle: RePEc:kap:enreec:v:75:y:2020:i:4:d:10.1007_s10640-020-00406-3
    DOI: 10.1007/s10640-020-00406-3
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    More about this item

    Keywords

    China’s emission trading; Total factor energy efficiency; Porter hypothesis; Difference-in-differences (DID); Difference-in-difference-in-differences (DDD);
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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