Industrial structure, energy-saving regulations and energy intensity: Evidence from Chinese cities

Abstract

Exploring the drivers of declining energy intensity is necessary in order to accelerate the transition to a low-carbon economy in China. To date, studies have typically adopted case analysis to link enterprise features and energy-saving performance. The impact of internal industrial configuration in terms of size and ownership structure on aggregate energy intensity remains to be examined. To fill this research gap, this paper tests the impact of the internal structure of industries on city-level energy intensity, by employing a unique panel dataset of 283 cities for the period 2005 to 2010. The Driscoll-Kraay method and instrumental variable are used to treat residual cross-sectional dependence and endogeneity, respectively. Results suggest that small-scale enterprises exerts a negative effect on energy intensity. A 1% increase in the output-value proportion of small-sized firms will lead to a decrease in total energy intensity of 0.067%. In contrast, the same change by medium enterprises will raise energy intensity by 0.031%. A negative and/or non-significant coefficient suggests that for most energy-intensive large and state-owned enterprises, China's 2006 top-down energy-saving regulation has been quite effective in targeting key energy-intensive enterprises in China. The findings reveal that state-owned enterprises (SOEs) can act as promoters of, rather than barriers to, low-carbon policy implementation in China. Given that the effectiveness of energy-saving regulation will be undermined as a result of diluted regulatory strength in each enterprise, market-oriented energy price reform is proposed as a fundamental driver for guaranteeing a continual decline in energy intensity.