Environmental regulation effects from the perspective on the industrial chain: evidence from energy enterprises in China

Abstract

More attention has been paid to environmental regulation of greenhouse gas emissions in the energy industry under the transformation of industrial structure. This paper takes microdata of Chinese energy enterprises from 1998 to 2012 as a sample to build a duty-sharing model, analyzes the effect of environmental regulations on the industrial chain, and explains the “double growth” phenomenon that occurred in China, which is nothing short of miraculous in terms of the environment and economy. In the industrial chain, the environmental obligations and responsibilities will be shared between upstream and downstream enterprises due to trade linkages. This paper finds that environmental responsibilities will move forward through the industrial chain when environmental regulations are strengthened. Downstream companies will loosen “relative” control constraints, thereby expanding output but increasing demand for upstream products. Different from the existing research, we claim that, since environmental regulation has a differential effect on the industrial chain, it will promote the growth of output in the entire chain, in contrast to the theory of “cost compliance”, which claims that environmental regulation will inevitably lead to the output. Based on this research, this paper puts forward some suggestions and insights on how the government implements environmental regulations.