The dynamic effect of environmental regulation on firms’ energy consumption behavior-Evidence from China's industrial firms

To mitigate the climate change and reduce energy consumption, the Chinese government has applied a variety of polices during the last two decades. Based on data from Industrial enterprises emission and pollution database (IEPED) and Annual Survey of Industrial Firms (ASIF), this study takes Energy Saving and Emission Reduction Plan (ESER) since 2006 as a policy shock to explore the impact of the ESER on industrial firms' energy consumption behavior. The result shows: Firstly, ESER encourages industrial firms to consume less coal, petroleum and natural gas on average. Secondly, by dividing the firms into several groups by the ownership structure, the firm size and the firm age, this paper finds different firms have different strategies in terms of changing their energy consumption to respond ESER. For example, public firms work harder on reducing coal and petroleum consumption per production while private firms prefer to use more natural gas per production. Thirdly, the dynamic effect analysis portrays that traditional fossil fuel intensity declines immediately after energy conversation policy, while the negative effect on industrial firms’ natural gas intensity could occur with some delay. Lastly, in terms of total energy consumption, average coal and petroleum consumption of polluted industries and that of non-polluted industries have no difference after the policy. In addition, ESER only has a short-term effect on energy consumption. These results are helpful in understanding how to design an efficient environmental regulation system and protect the environment simultaneously. • This study explores the impacts of the Energy Saving and Emission Reduction Plan (ESER) on firms' energy consumption behavior based on industrial firm data. • ESER encourages firms to consume less traditional energy (coal and fossil fuels) and clean gas. For different firms, their energy intensity changes distinctively in response to ESER. • The dynamic effect analysis portrays that traditional fossil fuel intensity declines immediately after energy conversation policy, while the negative effect on clean gas intensity occur with some delay. • ESER has a short-term and lagged effect on total energy consumption.