Environmental regulation and energy efficiency: evidence from daily penalty policy in China

Abstract

To achieve the twin aims of environmental improvement and economic progress, some cities in China have implemented a stringent environmental regulation, Daily Penalty Policy (DPP). Compared with previous environmental regulations, DPP dramatically increases the cost of environmental pollution, but it is unclear whether DPP can effectively control environmental pollution and improve economic development together. This study evaluates the environmental and economic effects of DPP by estimating the relationship between DPP and energy efficiency in time-varying difference-in-differences (Time-varying DID) models. Our results show that DPP increases the firm-level energy efficiency (β =0.07, p < 0.01) as well as confirm the twin effects of DPP on environmental pollution (decline in coal consumption and pollution emissions) and economic development (increase in production output).