Opportunity Cost of Environmental Regulation in China's Industrial Sector.

Ye Wang,Yunguo Lu,Lin Zhang

doi:10.3390/ijerph18168579

Abstract

In this paper, we employ a directional distance function to estimate the opportunity cost arising from environmental regulations in China’s industrial sector. The change of opportunity cost is decomposed mathematically into two components including technical change and input change. Our results show that the opportunity cost attributed to environmental regulation is nil in some regions. The change of opportunity cost is marginal at the national level, as the positive effect of technical change is canceled out by the negative impact of input change on opportunity cost. Built on our mathematical decomposition, we further estimate the effects of environmental regulations on opportunity cost using a mediation model. It shows that environmental regulation has a significantly positive direct effect and a significantly negative indirect effect through foreign direct investment on opportunity cost. Our findings suggest, firstly, that inward FDI in China’s industrial sector represents relatively dirty production technology; and, secondly, industrial production has transited towards a less carbon-intensive input mix. This paper, therefore, provides new insights for the recent dynamics of carbon abatement performance of China’s industrial sector with policy implications.

Highlights

The industrial sector is China’s biggest energy consumer and largest carbon emitter
We can see that the values of estimated OC are around unity for the industrial sectors We can see that the values of estimated OC are around unity for the industrial sectors in Beijing, Tianjin, Hebei, Shanghai, Jiangsu, Fujian, Shandong, Guangdong and Hainan in Beijing, Tianjin, Hebei, Shanghai, Jiangsu, Fujian, Shandong, Guangdong and Hainan during the sample period, which implies that there is almost no opportunity cost arising during the sample period, which implies that there is almost no opportunity cost arising from environmental regulations, i.e., no industrial output losses due to regulations
One possible explanation is that the industrial sectors in these relatively developed regions possible explanation is that the industrial sectors in these relatively developed regions face face stronger environmental regulations which force them to develop the regulated techstronger environmental regulations which force them to develop the regulated technology nology of lessemissions carbon emissions peroutput, unit ofthus output, the maximum in termsinofterms less carbon per unit of the maximum regulated regulated industrial industrial output is the same as the maximum unregulated industrial output

Summary

Introduction

The industrial sector is China’s biggest energy consumer and largest carbon emitter. It accounted for over 65% of total energy consumption and over 70% of total carbon emissions.a series of measures and reduction targets have been adopted to improve energy efficiency and reduce carbon emissions in Chinese industry. The industrial sector is China’s biggest energy consumer and largest carbon emitter. It accounted for over 65% of total energy consumption and over 70% of total carbon emissions. In 2015, China signed the Paris Agreement on climate change and announced the new CO2 reduction target, that is, by 2030, to achieve a 60–65% reduction in carbon intensity compared with the level of 2005. Such stringent regulations will change the costs of carbon abatement

Methods

Results

Conclusion