How do energy consumption and environmental regulation affect carbon emissions in China? New evidence from a dynamic threshold panel model

Abstract

Energy and environmental issues have already become two serious threats to China's sustainable development. In this study, the relationship between energy consumption, environmental regulation and carbon emissions is quantitatively examined after taking full control of spatial effects and potential endogeneity. To comprehensively analyze the effects of environmental regulation, it is also divided into performance-based environmental regulation and cost-based environmental regulation. To control endogenous problems caused by causal relationships between variables and allow possible nonlinear relationships between energy consumption and carbon emissions, a newly developed dynamic threshold panel model that incorporates the characteristics of generalized method of moments (GMM) is utilized to explore how energy consumption affects carbon emissions under different environmental regulations. The estimation results indicate that the rising energy consumption has an important role in promoting carbon emissions, but the promotion effect has declined as the level of environmental regulation increased. Furthermore, given that there is remarkable gap in economic and social development across different Chinese regions, the relationship is reexamined for three geographical regions (i.e., east, center and west). The results indicate that energy consumption significantly promoted carbon emissions in the three regions, and the promotion effect in the western region was highest. In addition, there is evidence that environmental regulation has effectively constrained the increase in carbon emissions in eastern and central China, while it did not function as expected to curb carbon emissions in the western region.