The impact and economic cost of environmental regulation on energy utilization in China

Abstract

This article utilizes three data envelopment analysis-based models: a no environmental regulation model, a weak environmental regulation model and a strong environmental regulation model to reveal the impact of environmental regulation on China’s regional total-factor energy efficiency (TFEE) during the period of 2003–2010. To take a further step, these three models are adjusted for calculating the correspondingly macro-economic cost of environmental regulation. The estimation results show that at present, the level of China’s environmental regulation is relatively low, and an enhancing of environmental regulation would lead to a sufficient increase of China’s regional TFEE with an enormous economic cost as its price. That means in China, the nationwide environmental stress is high, and the regulation cost is very huge. Strengthening environmental regulation would inevitably have some negative influences on China’s economy in the short run. Based on our findings, some corresponding policies are also proposed in this article.