Does environmental protection tax law accelerate energy transition? Evidence from electrification of 262 cities in China

Abstract

While global climate risk is increasing substantially with greenhouse gas emission, energy transition is a key approach to alleviate this concern. This paper constructs the difference in difference model (DID) and the difference-in-differences based propensity score matching model (PSM-DID) to estimate the effects of China’s Environmental Protection Tax Law on energy transition and its transmission path. The empirical results show that (1) China’s Environmental Protection Tax Law can promote energy transition through electrification, and this conclusion is still valid after a series of robustness tests. (2) China’s Environmental Protection Tax Law can facilitate energy transition by improving both the quantity and the quality of industrial structure upgrading. The findings of this paper not only enrich the literature on the energy transition and environmental tax designs in developing countries but also provide an empirical reference for the government to promote energy transition orderly by implementing environmental tax.