Threshold Effects of Environmental Regulation on Total Factor Energy Efficiency in China

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.

Keywords:

Environmental regulation, technological innovation, threshold effects, total factor energy efficiency.