Abstract
This paper examines the threshold effects of environmental regulation on China’s total factor energy efficiency (TFEE) using technological innovation (as measured by patents) as a threshold variable. Using the Slacksbased measure-undesirable (SBM-undesirable) output model, we first estimate TFEEs in 30 Chinese provinces from 2000 to 2011 under the constraints of energy conservation and emissions reduction. We then analyze the impact of environmental regulation on TFEE based on the panel threshold regression model. The results show that the average TFEE in China from 2000 to 2011 is 0.503, indicating that this measure can be significantly improved. However, environmental regulation has threshold effects on TFEE. Stringent environmental regulation can only improve TFEEs in provinces with technological innovation levels between the first and second threshold values. When technological innovation levels are below the first or above the second threshold value, tighter environmental regulation would lower TFEE. The results suggest that environmental regulation does not always enhance TFEE and that the positive effect of environmental regulation on TFEE must fall within a range of threshold values. In addition, improving the technological innovation level and adjusting the industrial structure have positive effects on TFEE, while the irrational energy consumption structure has a negative effect on TFEE.
Highlights
As the world’s largest energy consumer in 2012, China's primary energy consumption accounted for 21.9% of total global energy consumption
The Chinese government has gradually increased the intensity of environmental regulation to encourage companies to explore technological innovations and improve total factor energy efficiency (TFEE) through energy conservation and emissions reduction
The highest energy efficiency score exhibited in Yunnan province, reaching 0.966, while the lowest score is exhibited in Gansu province at only 0.207
Summary
As the world’s largest energy consumer in 2012, China's primary energy consumption accounted for 21.9% of total global energy consumption. This rate may increase to 26.6% in 2035 according to British Petroleum’s "Energy Outlook 2035". The increasing energy consumption and worsening ecological environment indicate that China's traditional pattern of economic development has seriously affected and restricted the country’s economic and social sustainability. Ensuring sustainable economic growth under the premise of energy conservation and pollution abatement has become a major issue in China. The Chinese government has gradually increased the intensity of environmental regulation to encourage companies to explore technological innovations and improve TFEE through energy conservation and emissions reduction. How can TFEE be measured effectively? Can intensifying environmenttal regulation improve TFEE? Is the impact of environmental regulation on TFEE linear?
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