Does Low-Carbon City Policy Improve Industrial Capacity Utilization? Evidence from a Quasi-Natural Experiment in China

Abstract

A low-carbon city policy (LCC) is a comprehensive environmental regulation to promote urban green development and resolve the overcapacity contradiction. This study uses China’s low-carbon city pilot policy as a “quasi-natural experiment” based on a panel of 266 Chinese cities, covering three batches of low-carbon pilot cities from 2003 to 2019. We measure industrial capacity utilization at the city level and then construct a time-varying DID (TV-DID) model to investigate the effect of a low-carbon city policy on industrial capacity utilization in Chinese cities, exploring the mechanism, heterogeneity, and spatial effects. It is found that (1) LCC improves industrial capacity utilization by approximately 3.2%, and the above finding still holds after a series of robustness tests, such as the parallel trend test, PSM-DID, DDD, and placebo test. (2) LCC improves industrial capacity utilization through three channels: alleviating resource misallocation, promoting industrial structure upgrading, and stimulating technological innovation. (3) The improvement of LCC on industrial capacity utilization has heterogeneity and positive spatial spillover effect. (4) The heterogeneity analysis shows that the improvement of LCC on industrial capacity utilization is stronger in cities in the high quartile of industrial capacity utilization, cities in old industrial bases, cities along the “Belt and Road” route, and cities in a free-trade zone. The theoretical analysis and empirical results of this study provide empirical support for the promotion of low-carbon city policy globally and provide ideas for solving the overcapacity contradiction in the context of global decarbonization.