Is policy uncertainty always harmful? - Empirical evidence from China's energy policy and city green transition

Energy policies in all countries are constantly adjusted and change, which leads to policy uncertainty. Thus, as green transition has become an important topic of universal concern across the world, it is necessary to explore the relationship between the two. With a focus on energy policy uncertainty (ENPU), our study investigates the impact of ENPU on green TFP, based on the panel data of China's prefecture-level cities. While the literature generally suggests that policy uncertainty hurts the economy, empirical evidence in this study shows that energy policy uncertainty can be a driving force to city's green transition. The main results are: (a) ENPU has a positive effect on energy efficiency. For every 1 standard deviation increase in the degree of ENPU, green TFP will increase by 0.002 %; (b) The positive effects of ENPU on green TFP exerts heterogeneities with city's resource endowment and environmental pressures, and the effect is significant in growing resource-based cities and light-pressure cities; (c) An increase of ENPU improves green TFP by stimulating corporate innovation and industry upgrading.