Energy target-based responsibility system and corporate energy efficiency: Evidence from the eleventh Five Year Plan in China

Abstract

China initiated an energy target-based responsibility system for local bureaucrats in its eleventh Five Year Plan, influencing officials' promotion incentives. Leveraging manually collected provincial energy intensity targets (EIT) and a unique firm-level dataset, we investigate the effect of such a target-based responsibility system on corporate energy efficiency in China. We find that the EIT constraint has a negative effect on corporate energy efficiency. On average, a one-percentage-point increase in the EIT leads to the decline of corporate energy efficiency by 7.7%. The finding indicates that overall enhanced provincial energy efficiency was not driven by improved corporate energy efficiency but by economic restructuring in the eleventh Five Year Plan. We also show that the inhibition effect tends to be pronounced for state-owned firms, export-oriented firms, capital-intensive firms, and firms located in central regions. In the context of dual control of energy intensity reduction and amount reduction (the Dual Control Policy), this study provides timely policy implications by shedding light on the effects of such a target-based performance system on corporate energy efficiency.