The impact of environmental regulation on total factor energy efficiency: A cross-region analysis in China

Abstract

Environmental regulations are the key measure by which governments achieve sustainable environmental and economic development. This study aimed to determine the direct and indirect impacts of environmental regulations on total factor energy efficiency of regions in China. Since regions have different levels of economic development and resource endowment, we used the slacks-based measure (SBM)-undesirable model to calculate total factor energy efficiency considering regional technology heterogeneity and examined the regional impacts of environmental regulation on this efficiency using the Tobit regression model. A positive direct impact was generated in the eastern region of China by the forced mechanism, which forced enterprises to reduce fossil fuel energy demand and increase clean energy consumption; whereas a negative direct impact was generated in the middle and western regions owing to the green paradox, which is the observation that expected stringent environmental regulation prompts energy owners to accelerate resource extraction. Moreover, indirect impacts through technological progress and foreign direct investment were taken into account in the model, and the results show that the indirect impacts vary across regions. A logical response to these findings would be to develop different policies for different regions.