Chinese provincial environmental performance changes and its determinants analysis, 2006–2010

Abstract

China proposed an ambitious goal of reducing energy consumption per unit of GDP by 20% over the period of its 11th 5-Year Plan from 2006 to 2010. This paper investigates the environmental and productivity enhancing performance of provincial governments implementing energy-saving targets assigned by the central government of China. Using Data Envelopment Analysis, we calculate an Environmental Performance Index (EPI) and a Malmquist Productivity Index (MPI) to measure the environmental performance and the productivity across 30 Mainland provinces of China from 2006 to 2010. The Slacks-Based Efficiency Measures (SBM) is adopted to modeling the EPI. We then use econometric techniques to estimate the effect of the energy-saving policy on both measures, controlling for other relevant variables (e.g., energy prices, energy endowment, industrial structure, initial energy intensity in 2005 and etc.). We set up the two-way panel data models with fixed group and time effect. The explained variables of these models are respectively EPI and MPI. For explanatory variables, we examine the energy-saving targets assigned by the central government, and the completion percentage of the energy intensity reduction each year, which respectively reflect the generosity of directives set by the central government and the pressure of achieving energy-saving targets each year. The analysis results indicate: (1) The provincial governments respond positively to the directives from the central government; (2) The pressure of achieving energy-saving targets for the provinces leads to an increase in environmental performance and to a shift outwards of the technological frontier at the provincial level; (3) The overly generous assignment of energy-saving targets for the provinces has a negative impact on both measures. So we draw a conclusion that the framework of the energy-saving policy introduced by the Chinese government is quite effective to promoting environmental performance and technological progress.