How do environmental regulation and environmental decentralization affect green total factor energy efficiency: Evidence from China

Abstract

Green development is critical for China's economic transformation. Enhancing green total factor energy efficiency (hereafter GTFEE) is vital to emission reduction and to win-win industrial development. This study uses the panel data of 30 Chinese provinces for the period 2005–2016 to investigate the relationship between environmental regulation and China's GTFEE. The spatial Durbin model is employed to control for the possible spatial spillover effect. A dynamic threshold panel model that can effectively address the endogeneity problem and regional heterogeneity is utilized to examine the potential non-linear relationship between environmental regulation and GTFEE under different conditions of environmental decentralization. The estimation results indicate that there is a significant U-shaped relationship between environmental regulation and China's GTFEE. With the further expansion of environmental decentralization, the local government's autonomous choice of pollution control is improved. The improvement of environmental decentralization can lead to negative moderating effect of environmental regulation on GTFEE. Additionally, the regression results of dynamic threshold model show that environmental decentralization can increase the negative influences of environmental regulation on GTFEE. Interestingly, the non-linear impact of environmental regulation on GTFEE is dependent on the specific type of environmental decentralization. Higher degree of environmental decentralization can lead to an increase in the restraining effect of environmental regulation on GTFEE. However, an improvement in the decentralization of environmental supervision and environmental monitoring can increase the negative influences of environmental regulation on GTFEE. • The impact of environmental regulation on green total factor energy efficiency (GTFEE) is examined. • Environmental decentralization is introduced as moderating variables. • Spatial econometric methods and dynamic threshold models are used for empirical estimations. • There exists a significant U-shaped relationship between environmental regulation and China's GTFEE. • Environmental decentralization increases the restraining effect of environmental regulation on GTFEE.