Environmental Protection Tax and Energy Efficiency: Evidence from Chinese City-Level Data

Abstract

The aggravated global warming and energy crisis have greatly challenged the healthy and sustainable development of society worldwide. Improving energy efficiency is one of the vital ways to overcome the dilemma. Existing studies explore the impact of environmental regulation on energy efficiency; however, the potential impact of the environmental protection tax (EPT) on urban energy efficiency has received little attention. Using the panel dataset of 278 Chinese cities from 2011 to 2019, the unified efficiency index (UEI) based on a total non-radial directional distance function (TNDDF) is first used to calculate urban energy efficiency. A difference-in-differences (DIDs) model is conducted to explore the impact of the EPT policy on the urban UEI and its potential mechanisms. The findings indicate that: (1) The average UEI in cities experienced an uptrend and a downtrend during 2011–2019. The overall UEI levels were low, especially in Jiaxiaguan, Tianshui, and Huyang cities. (2) The EPT policy significantly increases energy efficiency for the heavily polluting cities by approximately 5.21% more than that of the non-heavily polluting cities. (3) Heterogeneity analysis shows that EPT has a better effect on improving UEI in higher-level economic and non-resource-based cities. (4) Mechanism analysis implies that EPT boosts the urban UEI by stimulating urban green technology innovation, upgrading the industrial structure, and introducing foreign direct investment. This study offers empirical evidence and implications for policymakers using EPT to achieve higher urban energy efficiency and sustainable targets.