Green Paradox or Forced Emission Reduction—The Dual Effects of Environmental Regulation on Carbon Emissions

Abstract

In response to global climate change, China made a commitment about carbon emissions at the UN General Assembly. It will strive to achieve carbon peaking by 2030 and carbon neutrality by 2060. To help China successfully meet its carbon emissions targets this study examines the impact of environmental regulation on carbon emissions from a different perspective. Using panel data from 30 provinces in China as samples, this paper discusses the direct and indirect effect of environmental regulation on carbon emissions and explains the indirect process through four transmission paths: energy consumption structure, industrial structure, technological innovation, and foreign direct investment (FDI). The empirical results show that the direct effect of environmental regulation on carbon emissions presents an inverted U-shaped curve, it means that when the intensity level of environmental regulation is low, it mainly shows the green paradox effect, and with the continuous tightening of environmental laws, it turns into a forced emission reduction on carbon emissions. In addition, we found that under the constraint of environmental regulation conditions, the coal-based energy consumption is still the leading cause of carbon emissions; environmental regulations have contributed to the upgrading of industrial structure and technological advance, which indirectly play a positive role in carbon emission reduction. However, environmental regulation restrains the spillover effect and capital accumulation effect of FDI, which brings a specific degree of hindrance to technological progress and economic development, and is not conducive to carbon emission reduction. Therefore, we have made the following recommendations: China should make reasonable use of environmental policies to regulate carbon emissions according to the situation of each region, optimize the energy structure and increase the proportion of clean energy use, and improve the technology level of related industries to reduce carbon emissions by innovation.