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Relocation or reallocation: Impacts of differentiated energy saving regulation on manufacturing industries in China

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  • Zhu, Junming
  • Ruth, Matthias

Abstract

Unilateral tightening of environmental regulation is often considered to cause regulated industries to locate at places with lower compliance cost. The pollution haven effect may be offset, however, when endogenous technical change and factor reallocation can compensate increased compliance cost. This paper identifies the overall effects on industrial activities from provincially differentiated regulation of energy saving in China. Econometric specifications take into account the workings of different policy instruments, quantity and revenue-based measurement of output, policy-induced price effects, and alternative measurement of productivity and competitiveness. Results indicate that an introduction of energy-saving policies leads to loss of output and productivity in energy-intensive industries initially, which is passed on to other industries via markets of capital and energy-intensive goods. Under higher regulation, energy-intensive industries become more capital-intensive, regain productivity more quickly, and increase export rates; other industries become more labor-intensive, recover more slowly, and decrease export rates. Through capital investment and factor reallocation, China's policy has been effective in improving industrial energy efficiency without causing competitive loss or carbon leakage. An incentive-based instrument of differential electricity prices leads to similar effects on industries, implying the possibility for more efficient policy-making.

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  • Zhu, Junming & Ruth, Matthias, 2015. "Relocation or reallocation: Impacts of differentiated energy saving regulation on manufacturing industries in China," Ecological Economics, Elsevier, vol. 110(C), pages 119-133.
    • Handle: RePEc:eee:ecolec:v:110:y:2015:i:c:p:119-133
    DOI: 10.1016/j.ecolecon.2014.12.020
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    15. Lu & Pollitt, M. G. & Wang, K. & Wei, Y-M., 2023. "The Incremental Impact of China's Carbon," Cambridge Working Papers in Economics 2349, Faculty of Economics, University of Cambridge.
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    20. Makoto Kakinaka & Koji Kotani, 2006. "Promotion of Eco-Products and Environmental Regulation with Learning-by-Doing," Working Papers EMS_2006_07, Research Institute, International University of Japan.
    21. Xiaowen Wang & Shuting Wang & Yunsheng Zhang, 2022. "The Impact of Environmental Regulation and Carbon Emissions on Green Technology Innovation from the Perspective of Spatial Interaction: Empirical Evidence from Urban Agglomeration in China," Sustainability, MDPI, vol. 14(9), pages 1-19, April.
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