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Herding Cats: Firm Non-Compliance in China’s Industrial Energy Efficiency Program

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  • Valerie J. Karplus
  • Xingyao Shen
  • Da Zhang

Abstract

We study firm responses to a large-scale energy efficiency program in China, focusing on the quality of reporting and compliance outcomes. Using statistical methods to detect data manipulation in compliance reports, we find evidence that firms deliberately exaggerated performance during the first phase of the program (2006-2010), suggesting the high compliance rate was overstated. In its second phase (2011-2015), the number of firms in the program expanded by an order of magnitude, and the compliance rate decreased. We develop a simple model to show how the observed increase in non-compliance is consistent with reduced misreporting. Statistical tests find no evidence of manipulation in the second phase. Larger firms, especially those not controlled by the state, and firms in cities with relatively low growth were more likely to report non-compliance, which suggests a role for state control and local protectionism in shaping compliance decisions. Based on our findings, we offer several lessons for future program design.

Suggested Citation

  • Valerie J. Karplus & Xingyao Shen & Da Zhang, 2020. "Herding Cats: Firm Non-Compliance in China’s Industrial Energy Efficiency Program," The Energy Journal, , vol. 41(4), pages 1-30, July.
    • Handle: RePEc:sae:enejou:v:41:y:2020:i:4:p:1-30
    DOI: 10.5547/01956574.41.4.vkar
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    References listed on IDEAS

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    1. Kenneth Gillingham & Karen Palmer, 2014. "Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 8(1), pages 18-38, January.
    2. Esther Duflo & Michael Greenstone & Nicholas Ryan, 2013. "Truth-telling by Third-party Auditors and the Response of Polluting Firms: Experimental Evidence from India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(4), pages 1499-1545.
    3. Emanuele Bajo & Marco Bigelli & David Hillier & Barbara Petracci, 2009. "The Determinants of Regulatory Compliance: An Analysis of Insider Trading Disclosures in Italy," Journal of Business Ethics, Springer, vol. 90(3), pages 331-343, December.
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    Cited by:

    1. Dan Xie, 2024. "China’s Manufacturing Pollution, Environmental Regulation and Trade," FIW Working Paper series 198, FIW.

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