Environmental regulation, technology innovation, and low carbon development: Revisiting the EKC Hypothesis, Porter Hypothesis, and Jevons’ Paradox in China's iron & steel industry

Abstract

• EKC, Porter Hypothesis, and Jevons’ Paradox are tested in China IS industry. • Cointegration, VECM, IRF and granger causality techniques are used for analyses. • Environmental regulation exerts a critical role in emissions reduction. • The three hypotheses are confirmed under certain conditions. • Policy recommendations for IS industrial low-carbon development are posited. By comprehensively evaluating the potential effectiveness of environmental regulations and technical innovation in facilitating emission reductions, this study highlights the complexity of the relationships — short- and long-term as well as dynamic responses — between carbon dioxide (CO 2 ) emissions, energy efficiency, economic performance, environmental regulation and technological innovation using the vector error correction model (VECM) by incorporating exogenous policy factors based on China IS industrial data during the period 1995–2017. Empirical analysis indicates: (a) the existence of the Environmental Kuznets Curve (EKC) Hypothesis is established given an inverted U-shaped curve of CO 2 emissions along with the increase of industrial output value; (b) weak Porter Hypothesis (pH) stands in the short term as innovation can be spurred by environmental regulation, whereas strong pH is supported in both the short and long term when energy efficiency and emission reduction can be achieved under strict regulations;(c) Jevons’ Paradox is confirmed since the emissions increment brought by the massive increase in demand is greater than the emission reduction volume brought by energy efficiency improvement and; (d) Environmental regulation exerts a critical role in emission reduction, especially for the policies with market-based and common-and-control functions implemented since 2006. Corresponding policy implications to facilitate low-carbon transition of the ISI are proposed.