Resources Policy 67 (2020) 101678

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Resources Policy
journal homepage: http://www.elsevier.com/locate/resourpol

How do energy consumption and environmental regulation affect carbon

emissions in China? New evidence from a dynamic threshold panel model
Haitao Wu a, f, 1, Lina Xu f, 1, Siyu Ren f, 1, Yu Hao a, b, c, d, e, *, Guoyao Yan b, 1
a
Center for Energy and Environmental Policy Research, Beijing Institute of Technology, Beijing, 100081, China
b
School of Management and Economics, Beijing Institute of Technology, Beijing, 100081, China
c
Beijing Key Lab of Energy Economics and Environmental Management, Beijing, 100081, China
d
Sustainable Development Research Institute for Economy and Society of Beijing, Beijing, 100081, China
e
Collaborative Innovation Center of Electric Vehicles in Beijing, Beijing, 100081, China
f
College of Economics and Management, Xinjiang University, Urumqi, 830047, China

A R T I C L E I N F O A B S T R A C T

Keywords: Energy and environmental issues have already become two serious threats to China’s sustainable development.
Energy consumption In this study, the relationship between energy consumption, environmental regulation and carbon emissions is
Carbon emissions quantitatively examined after taking full control of spatial effects and potential endogeneity. To comprehensively
Environmental regulation
analyze the effects of environmental regulation, it is also divided into performance-based environmental regu­
Dynamic threshold model
lation and cost-based environmental regulation. To control endogenous problems caused by causal relationships
Spatial durbin model
between variables and allow possible nonlinear relationships between energy consumption and carbon emis­
sions, a newly developed dynamic threshold panel model that incorporates the characteristics of generalized
method of moments (GMM) is utilized to explore how energy consumption affects carbon emissions under
different environmental regulations. The estimation results indicate that the rising energy consumption has an
important role in promoting carbon emissions, but the promotion effect has declined as the level of environ­
mental regulation increased. Furthermore, given that there is remarkable gap in economic and social develop­
ment across different Chinese regions, the relationship is reexamined for three geographical regions (i.e., east,
center and west). The results indicate that energy consumption significantly promoted carbon emissions in the
three regions, and the promotion effect in the western region was highest. In addition, there is evidence that
environmental regulation has effectively constrained the increase in carbon emissions in eastern and central
China, while it did not function as expected to curb carbon emissions in the western region.

1. Introduction
Energy is an important material basis for human survival and
development (Kabir et al., 2018; Tesla and Nikola, 2019). With the re­
form and opening up, China’s total energy consumption has been
increasing year by year, from 570 million tons of standard coal in 1978
to 4.5 billion tons of standard coal in 2017 (see Fig. 1). According to BP
World Energy Statistical Yearbook (2018), China has already become
the world’s largest energy consumer since 2010. As of 2017, China’s
energy consumption accounts for 23.2% of the global total amount.
Undoubtedly, energy consumption has played an important role in
China’s economic growth and the rapid development of industrializa­
tion and urbanization (e.g., Li and Lin, 2015; Shahbaz et al., 2017;
Gozgor et al., 2018; Wang et al., 2018; Yang et al., 2018; Bakirtas and

* Corresponding author. Present address: School of Management and Economics, Beijing Institute of Technology, 5 Zhongguancun South Street, Haidian District,
Beijing, 100081, China.
E-mail addresses: 15875706@qq.com (H. Wu), 642023086@qq.com (L. Xu), 418888563@qq.com (S. Ren), haoyuking@gmail.com, haoyuking@bit.edu.cn
(Y. Hao), 523250029@qq.com (G. Yan).
URL: https://ideas.repec.org/d/cebitcn.html, http://www.ceep.net.cn/english/index.htm (Y. Hao).
1
These authors contributed equally to this study and share first authorship.

https://doi.org/10.1016/j.resourpol.2020.101678
Received 26 February 2020; Received in revised form 24 March 2020; Accepted 30 March 2020
Available online 16 April 2020
0301-4207/© 2020 Elsevier Ltd. All rights reserved.
H. Wu et al.
Fig. 1. The consumption levels (left scale) and the proportions (right scale) of different energy types in China.
Akpolat, 2018; Wu et al., 2020). At the same time, the rapid advance­
ment of industrialization and urbanization has accelerated energy con­
sumption and triggered a series of environmental problems (Wu et al.,
2019). Among them, the surge in the energy-related greenhouse gas
(GHG) emissions, especially CO2 emissions, has become an urgent
problem that international community concerns. Based on the estima­
tions of the International Energy Agency (IEA)，in 2017 CO2 emissions
of global fossil fuels have increased to 36.3 billion, of which nearly
one-third came from China. As depicted in Fig. 2 below, China is
currently the world’s largest carbon emitter, and its energy intensity
(energy consumption per unit of GDP) is also relatively high compared
with the developed countries (Wang et al., 2011; Ma et al., 2019; Cheong
et al., 2019).
Note: For simplicity, new energy sources are hydropower, nuclear
power and wind power. Source: The data are from the National Bureau
of Statistics (http://www.stats.gov.cn/).
To curb excessive growth of energy demand and reduce related
carbon emissions, Chinese government has made great efforts, including
formulating and conducting a series of energy and environmental reg­
ulations. To fulfill its ambitious goal of cutting carbon emissions per unit
of GDP by 60–65% in 2030 compared with the 2005 level (Ma et al.,
2019), Chinese government proposed specific goals in the “12th
Five-Year Plan (2011–2015)” and “13th Five-Year Plan (2016–2020)”.2
These “Five-Year Plans” are important parts of China’s national eco­
nomic projects and belong to the long-term programs. These plans aim
to set the roadmap for the major national construction projects, indus­
trial layout, economic transformation and upgrading, innovation driven
strategies, environmental governance priorities, etc. Hence, the “Five-­
Year Plans” set general goals and directions for China’s economic
2
For instance, in the “13th Five-Year Plan”, Chinese government vowed to
build a national unified carbon emissions trading market. For more informa­
tion, one could refer to https://www.nrdc.org/experts/alvin-lin/chinas-new-
plans-deepen-action-climate-change (accessed at 24/03/2020).
2
Resources Policy 67 (2020) 101678
development and therefore are of great significance to China’s economic
development. During the “12th Five-Year Plan” and “13th Five-Year
Plan” periods, the Chinese government issued a series of low-carbon
development policies to curb CO2 emissions. In terms of environ­
mental policies, the Chinese government has implemented stricter
environmental regulations and formed a governance system, in which
the government, enterprises and the public could work together. As for
energy consumption, the Chinese government has vowed to accelerate
energy technology innovation and started to build a clean, low-carbon,
safe and efficient modern energy system. In the meanwhile, to increase
the proportion of non-fossil energy in the energy mix and promote the
clean and efficient use of fossil energy (especially coal), the Chinese
government has reformed the energy price system and dedicated to
establish an effective competitive market mechanism. The Chinese
government has also strengthened energy consumption control in
energy-intensive industries, and launched some effective regulations to
control for carbon emissions in key industries such as power generation,
steel making, building materials, and chemical industry. In addition, to
further reduce CO2 emissions, the Chinese government has also actively
promoted low-carbon transportations and encouraged green
commuting. Given that China is in a critical period of industrialization
and urbanization, and the coal-based energy consumption structure
makes China’s carbon emission reduction extremely difficult (Hao et al.,
2015, also refer to Fig. 1). To build the “ecological civilization” and
promote high-quality sustainable economic development, Chinese gov­
ernment has promulgated a series of laws and regulations and
H. Wu et al.
Fig. 2. CO2 emissions from the world’s top ten carbon emitters.
Source: International Energy Agency (IEA)
strengthened environmental protection.3 However, the actual effects of
the existing energy and environmental regulations and policies are still
unclear and even highly controversial in the academia (e.g., Chen et al.,
2018; Hao et al., 2018). Therefore, in the context of the Chinese econ­
omy seeking high-quality development, to investigate the relationship
between environmental regulation, energy consumption and carbon
emissions has important theoretical and practical significance for
China’s future carbon emission reduction policy formulation and green
development.
In this regard, to sum up, the main contribution of this study is
threefold. First, the relationship between environmental regulation,
energy consumption and carbon emissions is analyzed in a compre­
hensive framework. Therefore, the research conclusions are helpful to a
3
Since the beginning of the reform and opening up, the driving force of
China’s economic growth has largely depended on the excessive resource and
energy consumption. On one hand, the rapid development of industrialization
and urbanization not only creates material wealth, but also intensifies the
contradiction and conflict between human and nature. The extensive growth
model makes China to fall into an unprecedented crisis of resource shortage,
environmental degradation and ecological damage. In particular, the increase
in air pollution and the occurrence of extreme weather in some large and
medium-sized cities have caused great harm to public health. On the other
hand, with the continuous improvement of Chinese people’s material living
standard and consumption levels, the people’s demand for good ecological
environment, the maintenance of environmental rights and public ecological
products has grown dramatically. All of these issues indicate that China’s
economic development cannot continue to rely on excessive inputs of resources
and energy consumption, and ecological environment protection cannot be
ignored in the process of resource utilization and economic growth. Therefore,
the construction of “ecological civilization” is the inevitable trend and
requirement of China’s sustainable development. The “Ecological civilization”
is the material, spiritual and institutional achievement achieved by mankind for
the protection and construction of a beautiful ecological environment. It is also
a great project that involves the various aspects of economic construction,
political construction, cultural construction, and social construction.
3
Resources Policy 67 (2020) 101678
deep understanding of the inherent mechanisms of environmental reg­
ulation’s emission reduction effects. Second, the proper spatial econo­
metric method is utilized to control for possible spatial dependency, and
the spatial spillover effects of carbon emissions are carefully studied.
Third, a newly developed dynamic threshold panel model is employed to
examine the possible nonlinear relationship with taking full account of
potential endogeneity problem. In this way, the relationship between
environmental regulation, energy consumption and carbon emissions
could be revealed more reasonably and accurately.
The remainder of the article is organized as follows. In Section 2, the
literature review, In Section 3, the estimation methodology and the data
utilized in this study are briefly interpreted. In Section 4, the empirical
results. In Section 5, the estimation results are discussed. In Section 6,
the conclusions and related policy implications are provided.
2. Literature review
When it comes to energy consumption, environmental regulation
and environmental pollution, previous research has focused on the
relationship between energy consumption and environmental pollution,
the relationship between environmental regulation and energy con­
sumption, and the relationship between environmental regulation and
environmental pollution. Therefore, in this section, we also review the
previous literature in terms of these three aspects.
2.1. Energy consumption and environmental pollution
Regarding the relationship between energy consumption and envi­
ronmental pollution, most scholars believed that energy consumption
leads to environmental pollution (Arouri et al., 2012; Saidi and Ham­
mami, 2015; Esso and Keho, 2016; Srinivasan and Ravindra, 2015;
Bildirici and Go
€kmenog �lu, 2017; Neagu and Teodoru, 2019; Zhu et al.,
2019; Hao et al., 2020; Li et al., 2020). Related studies have found that
energy consumption is one of the key factors for the formation and
dispersion of air pollution in various influencing factors, such as energy
use, economic activity intensity, and climatic conditions (Wang et al.,
H. Wu et al.
2019; Yu et al., 2019; Shi et al., 2019). Soytas et al. (2007) examined the
relationship between energy consumption, income and carbon emis­
sions in the United States. The results show that the increase in energy
consumption will inevitably lead to an increase in carbon emissions.
Bilen et al. (2008) studied the relationship between energy production,
energy consumption and environmental pollution in Turkey and found
that Turkey relies too much on imported energy in the process of eco­
nomic development. This not only caused a serious economic burden on
the Turkish mainland, but also brought serious environmental pollution
problems to the country. Sharma (2011) conducts research from
high-income countries, middle-income countries, and low-income
countries. The results indicated that per capita energy consumption is
the main cause of carbon dioxide emissions. Liu et al. (2018) suggested
that the rapid growth of cement production has led to a significant in­
crease in carbon dioxide emissions. In recent years, with the develop­
ment and application of spatial econometrics, different spatial
measurement methods are used to study energy consumption and
environmental pollution (Maddison, 2006; Videras, 2014; Yue et al.,
2019; Sun et al., 2019; Shao et al., 2019). Maddison (2006) used the
spatial lag models (SLM) and spatial error models (SEM) to study the
relationship between energy consumption and air pollution in 136
countries and found that air pollution is spatially dependent, and the
“EKC curve” is further strengthened by the spatial weight matrix.
Videras (2014) conducted a method using a geographically weighted
regression model and found that there is a spatial correlation between
energy consumption and environmental pollution. Yue et al. (2019)
argued that there is a significant spatial correlation between energy
consumption and environmental pollution in Beijing, Tianjin and Hebei
in China.
2.2. Environmental regulation and energy consumption
Considering environmental regulation and energy consumption, the
previous literature focused on the relationship between environmental
regulation and energy consumption structure, and the relationship be­
tween environmental regulation and energy efficiency. When it comes to
environmental regulation and energy efficiency, relevant research sug­
gested that environmental regulation is conducive to energy efficiency
(Mandal, 2010; Bi et al., 2014; Pan et al., 2017). Mandal (2010) studied
the data of the Indian cement industry and found that environmental
regulation really could promote the increase of energy efficiency. It is
considered that there is significant spatial heterogeneity in this pro­
motion. Bi et al. (2014) used the data on China’s thermal power industry
to study the impact of environmental regulation on energy efficiency,
and found that environmental regulation can not only reduce environ­
mental negative externalities, but also promote energy efficiency. Pan
et al. (2017) used China’s 2006–2015 China provincial panel data, and
found that market incentive environmental supervision can promote
energy efficiency through technological innovation, while command
and control environmental supervision directly contributes to energy
efficiency. However, some studies suggested that environmental regu­
lation does not always promote energy efficiency improvements
(Dirckinck-Holmfeld, 2015; Hancevic, 2016). Dirckinck-Holmfeld
(2015) studied the impact of environmental regulation on energy effi­
ciency in Denmark and found that government environmental regula­
tion could not promote energy efficiency. Hancevic (2016) analyzed the
impact of Mexico’s Clean Air Act amendments on productivity and en­
ergy efficiency in 1990, arguing that environmental regulation has a
negative impact on energy efficiency. Regarding environmental regu­
lation and energy consumption structure, some scholars suggested that
environmental regulation can promote the optimization of energy con­
sumption structure and reduce the consumption of traditional energy (e.
g., Shi et al., 2009; Van der Ploeg and Withagen, 2012). Shi et al. (2009)
argued that there is a significant negative correlation between envi­
ronmental regulation and coal consumption scale by analyzing the
correlation between China’s environmental regulation and energy
4
Resources Policy 67 (2020) 101678
consumption structure from 1998 to 2006. Van der Ploeg and Withagen
(2012) suggested that enterprises may increase the exploitation and
consumption of fossil energy for the sake of short-term economic ben­
efits, that is, the emergence of green paradox in environmental man­
agement, and the strengthening of environmental regulation may
worsen the energy consumption structure in the short term.
2.3. Environmental regulation and environmental pollution
Regarding the relationship between environmental regulation and
environmental pollution, the conclusions of the study are controversial.
Some studies believed that environmental regulation can reduce envi­
ronmental pollution to a certain extent. Porter and Van der Linde (1995)
suggested that strict and properly designed environmental regulations
can stimulate corporate innovation activities. At the same time, the
resulting “compensation effect” can partially or even completely offset
the cost of environmental regulation and contribute to productivity.
Laplante and Rilstone (1996), taking the Canadian pulp and paper
products industry as an example, found that environmental regulation
can indeed reduce the pollution emissions of enterprises. Marconi
(2012) studied the impact of environmental regulations on waste gas
and wastewater in China and the EU 14, and found that environmental
regulations can significantly reduce pollution emissions. Van der Ploeg
and Withagen (2012) argued that environmental regulation does not
necessarily contribute to increased carbon emissions and a decline in
green welfare. Cairns (2014) found that environmental regulation can
promote carbon emissions reduction without considering the natural
and technical characteristics of oil production. On the contrary, some
scholars believe that environmental regulation may not promote the
reduction of environmental pollution, which is also called the “green
paradox” hypothesis. Sinn (2008) believes that environmental regula­
tion has a positive effect on carbon emissions. The reasons may be that
the carbon emission tax is not set properly, the administrative measures
reduce the demand for fossil energy, and there is a lag in the imple­
mentation of the policy. A study by Smulders et al. (2012) suggested that
the early publication of environmental regulations can lead to a rapid
increase in carbon emissions, possibly because the scarcity of fossil fuels
is not considered. Ritter and Schopf (2014) found that “green policy” not
only leads to accelerated mining of fossil fuels, but also leads to large
emissions of greenhouse gases. In addition, some people believe that the
“green paradox” and “emission reduction effect” of environmental
regulation exist simultaneously. Min (2018) found that environmental
regulation showed a significant inverted U-shaped trend on carbon
emissions. Before the turning point, it showed a “green paradox” effect,
and after the turning point, it showed an “emission reduction effect”
effect.
Despite a growing body of previous literature on the energy con­
sumption, environmental regulation and carbon emissions, there are
still some limitations on this field of study. In the past, the literature did
not include energy consumption, environmental regulation and carbon
emissions in the same analytical framework for theoretical and empir­
ical research. Second, previous studies have not considered the rela­
tionship between energy consumption and carbon emissions under the
conditions of environmental regulation. Third, from the perspective of
research methods, previous studies are mostly linear analysis, ignoring
regional heterogeneity. Fourth, previous studies are mostly static, and
endogenous problems caused by two-way causality between variables
cannot be effectively solved. Therefore, based on the provincial panel
data of China from 2006 to 2015, this paper uses the spatial Durbin
model and dynamic threshold panel model to comprehensively analyze
the impact of environmental regulation and energy consumption on
carbon emissions. More importantly, the spatial Durbin model controls
the spatial spillover effect; since the dynamic threshold panel model
consists of the threshold model and the GMM, it can not only study
spatial heterogeneity, but also effectively solve potential endogenous
problems.
H. Wu et al. Resources Policy 67 (2020) 101678

3. Methodology and data model of this paper can be obtained:

LNCO2 it ¼ β0 þ β1 lnEnergyit þ β2 lnGDPit þ β3 lnGDP2 it þ β4 lnSTRit

3.1. Econometric methodology
3.1.1. The derivation of basic model
In the study of the relationship between carbon emissions and eco­
nomic activities, according to the research of Grossman and Krueger
(1995), and comprehensively considers the impact of economic activ­
ities on carbon emissions from three aspects: scale effect, technical effect
and structural effect. The basic model is as follows:
E ¼ Y⋅T⋅S (1)
Where, E represents carbon emissions. Y, T, and S indicate scale effect,
technical effect, and structural effect, respectively.
3.1.1.1. Scale effect. Economic development consumes a lot of energy,
and the greater the scale of economic development, the more energy is
used. At the same time, more output will lead to an increase in pollution
emissions. Therefore, energy consumption and economic development
are mainly considered in the scale effect of economic activities. In
addition, in order to test whether there is an “environmental Kuznets
curve (EKC) relationship between economic development level and
carbon emissions, the square of per capita GDP is added to the scale
effect. According to the above analysis, the following equation can be
obtained:
�
Y ¼ f Energy; GDP; GDP2 (2)
3.1.1.2. Technical effects. In the process of economic development,
technological progress will have two effects on the environment: The
technological progress will promote productivity, reduce the use of re­
sources per unit of output, and weaken the impact of economic activities
on the environment; The development and application of environmental
protection technologies promote the recycling of resources and reduce
pollutant emissions per unit of output. The variable T in model (1)
contains the main factors of technological progress. In an open economy,
technological advances can be achieved both through increased R&D
investment by local firms and through international technology spill­
þ β5 lnFDIit þ β6 lnRDit þ αi þ vt þ εit (6)
Where, i and t represent province and time,4 respectively (i ¼ 1, 2, 3, …,
30; t ¼ 2006, 2007, …,2015). μi and νt indicate the provincial effects and
the time effects, respectively. εit is called the idiosyncratic error term,
and we assume that the errors (εit ) are independently and identically
distributed (i.i.d.).CO2it indicates carbon emissions, Energyit is energy
consumption. ​ GDPit , GDP2 it ; STRit , FDIit and RDit represent GDP per
capita and its squared term, industrial structure, foreign direct invest­
ment and R&D investment intensity, respectively.
According to previous research, environmental pollution such as
carbon emissions in a region will be affected by the previous period.
Therefore, based on equation (6), the lag phase of carbon emission
(LNCO2it 1 ) is introduced as an explanatory variable. The following
equation can be obtained:
LNCO2 it ¼ β0 þ β1 LNCO2it 1 þ β2 lnEnergyit þ β3 lnGDPit þ β4 lnGDP2 it
þ β5 lnSTRit þ β6 lnFDIit þ β7 lnRDit þ αi þ vt þ εit (7)
3.1.2. Spatial Durbin model
3.1.2.1. The design of the spatial Durbin model. The Spatial Durbin
Model (SDM) is a combined extension of the spatial lag model (SLM) and
the spatial error model (SEM). The spatial Durbin model is characterized
by considering both the spatial dependence of the dependent variable
and the spatial correlation of the independent variable. Considering that
there may be spatial correlations between China’s energy consumption
and carbon emissions, the spatial Durbin model was introduced in this
paper. In addition, in order to study how environmental regulation af­
fects carbon emissions, environmental regulation is also included as an
independent variable in the spatial Durbin model. The specific form of
the model is as follows:
X
N
lnCO2it ¼ ρ Wijt lnCO2it þ β1 lnCO2i;t 1 þ β2 lnEnergyit þ β3 ERIit
j6¼i

overs (e.g., Foreign Direct Investment). Therefore, R&D investment and X

N X
N X
5
þ β4 Wijt lnEnergyit þ β5 Wijt lnERIit þ δk Xkit þ αi þ vt þ εit
foreign direct investment (FDI) are the main factors for technological
j6¼i j6¼i k¼1
progress and are brought into the equation. The following equation can
(8)
be obtained:
Further, in order to study the moderating effect of environmental
T ¼ f ðFDI，RDÞ (3)
regulation on energy consumption, an interaction term between envi­
ronmental regulation and energy consumption is added to the model.
3.1.1.3. Structural effects. The high growth rate in modern economic The following model can be obtained.
growth is always accompanied by high structural changes. As the level of
economic development increases, the output structure will gradually X
N
lnCO2it¼ ρ Wijt lnCO2it þ β1 lnCO2i;t þ β2 lnEnergyit þ β3 ERIit
change. The transition from agricultural-based economic structure to
1
j6¼i
industrial-based economic structure relies too much on the use of re­
X
N X
N
sources and energy. As a result, pollution emissions increase and envi­ þ β4 ðERIit � lnEnergyit Þ þ β5 Wijt lnEnergyit þ Wijt lnERIit
ronmental quality declines. As the economic structure shifts to a j6¼i j6¼i

knowledge- and technology-intensive industry, the input structure X

5

changes, and the industrial structure gradually shifts toward the sec­ þ δk Xkit þ αi þ vt þ εit (9)
ondary and tertiary industries. Correspondingly, the level of carbon
k¼1

emissions per unit of output will decline and the environmental quality
will gradually improve. Therefore, structural effects can be expressed by
changes in industrial structure. The following equation can be obtained:
S ¼ f ðSTRÞ (4)
Based on the above analysis, substituting (2), (3), and (4) into
equation (1), the following equation can be obtained:
�
E（CO2 ） ¼ Y Energy; GDP; GDP2 ⋅TðFDI，RDÞ⋅SðSTRÞ (5)
Taking the logarithm of both sides of the above formula, the basic
Where, ERI is environmental regulation; X represents a series of control
variables, including per capita GDP (pgdp) and its squared term
(pgdp2), R&D investment intensity (rd), industrial structure (str), and
foreign direct investment (fdi); W is spatial weight matrix; α, ρ, β, δ are
parameters.
4
For the convenience of analysis and to save space, the term “province” is
utilized to represent all provincial administrative units in China, including
provinces, municipalities, and minority autonomous regions.

5
H. Wu et al.
3.1.2.2. Construction of spatial weight matrix. In the spatial econometric
regression model, the introduction of spatial weight matrix is to control
for the regional spatial geographical effect. Therefore, the correct setting
of spatial weight matrix should reasonably and correctly measure the
spatial spillover effect. At present, spatial econometrists mainly use
geographical adjacency matrix and economic weight matrix to analyze
spatial effect. The geographical adjacency matrix is constructed based
on the influence of spatial location factors on economic variables. Ac­
cording to Tobler’s First Law of Geography, all things are related, but
nearby things are more related than distant things (Tobler, 1970; Li
et al., 2018). Especially, for air pollutants, the phenomenon of air pol­
lutants cross regional transmission between adjacent areas is more
obvious under the influence of atmospheric circulation. However, with
economic development, the relationship between different countries
and regions within a country become increasingly closer over time. In
this regard, the interregional environmental regulations and carbon
emissions are not only dependent on the spatial distance, but also
related to the level of regional economic development and other factors
(Wang et al., 2019). Generally speaking, it is more likely to observe the
imitation behaviors among the regions with more similar levels and
styles of economic development. The imitation behaviors in economic
activities would in turn lead to the high similarity in economic devel­
opment mode, industrial policy and government governance strategy
(Millimet and Roy, 2016). Therefore, there may also be a mutual in­
fluence between regions that are not adjacent to each other, and it is also
necessary to take account of the economic factors in the spatial econo­
metric analysis. In this research, the impact of economic distance and
geographical distance on carbon emissions is considered comprehen­
sively, which could to some extent improve the robustness of the
empirical findings. In practice, geographic distance is often more
important than economic distance in the spatial spillover effect of
regional carbon emissions. Therefore, in this study the geographic ad­
jacency matrix is chosen as the benchmark matrix. The geographic
weight matrix uses the reciprocal of the geographical distance of each
region. The economic weight matrix is expressed by the “economic
distance” of the space, and the formula is as follows:
� According to IPCC (2006), China national climate change coordination
1
Eij ¼ �� �; Eii ¼ 0 (10)
yi yj
Xt1
yi ¼
1
yit (11)
t1 t0 þ 1 t¼t0
Where, yit is the per capita real GDP of the i province in the t year. When
dealing with the spatial weight matrix w, we use the maximum eigen­
values for normalization, avoiding a series of errors that may be caused
during the processing (Kelejian and Prucha,2008).
3.1.2.3. Spatial correlation test. The Moran index (Moran’ I) is often
used to test whether there is spatial autocorrelation between regions in
previous studies (Cheng et al., 2018; Cheng, 2016). The Moran index has
a value range of [-1, 1]. If the Moran index is in the range of (0,1), it
indicates that the space is positively correlated. If the Moran index is in
the range of [-1,0), it represents a spatial negative correlation. The closer
the Moran index is to 0, the smaller the spatial dependence. The Global
Moran’ I to test the spatial correlation degree of environmental pollution
in this paper. The formula for Moran’ I is as follows:
P P � cifically, potential endogenous variables are regressed against the selected
n ni¼1 nj¼11 wij ðxi xÞ xj x
Imorans ¼ P P (12)
S2 ni¼1 nj¼1 wij
P P
WhereS2 ¼ ni¼1 ðxi xÞ2 ,x ¼ 1n ni¼1 xi . The spatial correlation between
provinces can be tested by the local Moran’ I, and the formula is as
follows:
6
Resources Policy 67 (2020) 101678
X
n
Ii ¼ Zi � wij zj (13)
j¼1
Where, zi ¼ xi x and zj ¼ xj x are the deviations between the
observed value and the mean, respectively.
3.1.3. Dynamic threshold panel model
To further investigate the impact of energy consumption on carbon
emission levels under different environmental regulations, a threshold
regression model was introduced in this paper。 Meanwhile, in order to
avoid exogenously dividing the data interval and the estimation bias
caused by the endogenous problem of the static threshold model in the
past, the following dynamic threshold panel model is set up according to
the study of Wu et al. (2019) 5:
lnCO2it ¼ α þ β1 lnCO2it þ β2 lnEnergyit ⋅Iqit � c þ β3 lnEnergyit ⋅Iqit
1
X
5
> cþ δk Xkit þ αi þ vt þ εit (14)
k¼1
Where, qit represents the threshold variable, namely environmental
regulation. I(∙) indicates the indicator function and c is the specific
threshold value.
3.2. Data
3.2.1. Carbon emissions
At present, China’s carbon emissions mainly come from fossil fuel
combustion and industrial production processes (Liu and Zhang, 2009).
Fossil fuels mainly include coal, coke, petroleum (which can be divided
into fuel oil, gasoline, kerosene, diesel) and natural gas. CO2 emissions
in industrial production mainly include CO2 produced in the production
process of cement, lime, calcium carbide, etc., in which CO2 produced
by cement production process accounts for the largest proportion.
Considering the availability and completeness of the data, only the
carbon emissions from the cement production process are calculated.
group office, China’s CO2 emissions in 30 provinces from 2006 to 2015
are calculated in this paper. The carbon emissions from fossil fuel
combustion can be summed up after multiplying various energy con­
sumptions by the carbon dioxide emission coefficient. The specific
calculation formula is as follows:
X X
7 7
44
TCO2 ¼ CO2i ¼ Qi � CFi � CCi � COFi (15)
i¼1 i¼1
12
5
The traditional threshold panel model is a static model that uses fixed ef­
fects for the regression analysis (Hansen, 1999, 2000). In essence, the
fixed-effects estimators are biased downward because the regressors may be
correlated with unobserved fixed effects (Nickell, 1981). The instrumental
variable estimators (specifically the GMM approach) can well address the
endogeneity issues (e.g., Arellano and Bond, 1991; Arellano and Bover, 1995;
Blundell and Bond, 1998). The newly developed dynamic threshold panel
model, which comprehensively incorporates the characteristics of the GMM
method and recently developed time-series techniques for threshold models,
could effectively solve potential endogeneity issues (Dang et al., 2012). Spe­
instrumental variables in the dynamic threshold panel model’s estimation
process. The endogenous variables’ estimated values, rather than their actual
values, are utilized in the estimation. Finally, the two-step first-difference GMM
estimator is incorporated with the previously selected instrumental variables
used in estimating the explanatory variables’ coefficients (Wu et al., 2019). In
this regard, the newly developed threshold panel model employed in this study
utilizes panel data (rather than cross-section data and therefore is dynamic),
could well address potential endogeneity and identify the exact levels of the
possible thresholds.
H. Wu et al.
Where, TCO2 represents the total amount of carbon dioxide released by
various types of fossil energy consumption; Qi indicates the final con­
sumption of the ith energy source in 30 provinces; CFi is the calorific
value released by each energy consumption; COFi indicates a carbon
oxidation factor; CFi � CCi � COFi represents the carbon emission co­
efficient; CFi � CCi � COFi � 44
12 is the carbon dioxide emission
coefficient.
The calculation formula for carbon emissions in the cement pro­
duction process is as follows:
CCO2 ¼ QC � ECcement (16)
Where, CCO2 represents the total amount of CO2 released during cement
production; QC is the total amount of cement produced in industry;
ECcement indicates the CO2 emission coefficient of cement production
process.
3.2.2. Energy consumption
As for the data for energy consumption, on the one hand, energy, as
an important material basis for economic development and residents’
lives, has an important role in promoting the development of compre­
hensive urbanization. On the other hand, carbon emissions and envi­
ronmental pollution caused by energy consumption further increase the
construction cost of urbanization (Wu et al., 2019). According to the
previous literature, we use the total energy consumption to represent
energy consumption (Hao and Peng, 2017).
3.2.3. Environmental regulation
So far, many methods have been developed to measure the intensity
of environmental regulation, and these methods could be classified into
two categories, i.e., cost-based environmental regulation indexes and
performance-based environmental regulation indexes. The cost-based
index mainly measures the degree of environmental regulation from
the perspective of the expenditure (input) of pollution control. The
scholars who adopt this index believe that the cost and investment of
pollution control are positively correlated with the intensity of envi­
ronmental regulation. Therefore, pollution control expenditure can well
reflect the environmental regulation (Walter, 1973; DONG et al., 2011).
However, some scholars have questioned the index, arguing that there
are no official statistics for the emission fee investment and pollution
investment that focus on air quality control. Therefore, it may be inac­
curate to measure the intensity of environmental regulation with the
total pollution charge and pollution investment. In addition, because the
cost of pollution control is usually closely related to the level of regional
industrial development, the total industrial output value and the gov­
ernment’s preference for pollution reduction, using the payment cost of
pollution control as a measurement of the intensity of environmental
regulation may lead to serious endogenous problems (Jaffe and Palmer,
1997). Given the defects of cost-based environmental regulation in­
dexes, some scholars argue that the effect or performance of environ­
mental pollution control can better reflect the level of environmental
regulation. Therefore, the removal rate and utilization rate of different
pollutants are regarded as important indicators to measure environ­
mental regulation. The main advantages of performance-based envi­
ronmental regulation indexes are as following. First, the most important
purpose of environmental regulation is to reduce the pollution emis­
sions, therefore the performance-based indicators measured by the
removal rate and utilization rate of different pollutants can better reflect
the effectiveness of government environmental regulation. Second,
performance-based indicators, such as industrial sulfur dioxide removal
rate, industrial wastewater compliance rate and comprehensive utili­
zation rate of industrial solid waste, are important data released by
National Statistical Bureau (NBS) of China and therefore available and
reliable. As a result, this study takes the performance-based environ­
mental regulation index as the benchmark indicator.
7
Resources Policy 67 (2020) 101678
3.2.3.1. Performance-based environmental regulation. Three indicators of
industrial sulfur dioxide removal rate, industrial wastewater compliance
rate and industrial solid waste comprehensive utilization rate were used
to construct a performance-based environmental regulation index sys­
tem in this paper (Levinson, 1996). The specific calculation steps are as
follows:
First, the three individual indicators of industrial sulfur dioxide
removal rate, industrial wastewater compliance rate and industrial solid
waste comprehensive utilization rate are standardized:
� ��
ptij min ptj
ptijw ¼ � � �� (17)
max ptj min ptj
Where, ​ ptij represents the jth indicator of the ith province; ​ maxðptj Þ
and minðptj Þ represent the maximum and minimum values of indicator j
in all provinces in China, respectively; ptijw indicates the normalized
value of the index i of the ith province.
Second, the adjustment coefficient Qij is calculated for each of the
three indicators in different provinces. Due to the difference in the
proportion of industrial sulfur dioxide, industrial wastewater and in­
dustrial solid waste in different provinces, given the different emissions
of different pollutants in the same provinces, the individual pollution
emission indicators of each province are given different weights. The
adjustment coefficient Qij is calculated as follows:
,
pij gdp
Qij ¼ P P i (18)
i pij i gdpi
Where, pij represents the discharge of the ith pollutant of the province.
gdpi is the gross production value of ith province. The calculation results
of Qij show that if the emission of ith pollutant in the ith region is
relatively high, the same pollution treatment rate means stronger
environmental regulation, and thus the weight given is greater.
Finally, according to the standardized values and adjustment factors
Qij of the three individual indicators of industrial sulfur dioxide removal
rate, industrial wastewater compliance rate and industrial solid waste
comprehensive utilization rate, the degree of environmental regulation
of the corresponding provinces is obtained.
,
X 3
ER1 ¼ w
Qij ptij 3 (19)
j¼1
3.2.3.2. Cost-based environmental regulation. In order to make the
empirical results more stable, the ratio of industrial pollution control
investment to total industrial output value is used as a proxy variable for
environmental regulation in this paper (Lanoie et al., 2008).
ER2 ¼ IPCIit =TIOVit (20)
Where, IPCIit indicates industrial pollution control investment in each
province; TIOVit is the total industrial output value of each province.
3.2.4. Control variables
In addition, some other explanatory variables are introduced as
control variables. Specifically, following previous literatures, per capita
industrial added value as a proxy variable of economic development
level (Schumpeter, 2017); the ratio of R&D expenditure to GDP is used
to indicate R&D investment intensity (Schot and Steinmueller, 2018);
the ratio of the added value of GDP in the tertiary industry is the proxy
variable of the industrial structure (Elliott et al., 2017); per capita
foreign direct investment is utilized to as the proxy variable of foreign
direct investment (Wu et al., 2019).
3.2.5. Data sources
The sample period of this study is from 2006 to 2015. The data of
each variable comes from China Environmental Statistics Yearbook,
H. Wu et al.
China Environmental Yearbook, China Energy Statistics Yearbook,
China Science and Technology Statistical Yearbook, Wind Database and
National Bureau of Statistics. Considering the lack of data for Tibet and
the poor availability of data for Hong Kong, Macao, and Taiwan, the
study is conducted in 30 provinces, excluding Tibet, Hong Kong, Macao
and Taiwan. To eliminate the impacts on changes in general price, the
GDP series have been converted to the constant 2006 price. The statis­
tical description of the sample is shown in Table 1 below. Moreover, to
depict the distributions of the key variables of this study intuitively, the
provincial levels of CO2 emissions, energy consumptions and two in­
dicators for environmental regulation (ER1 and ER2) in year 2015 are
shown in Fig. 3.
4. Empirical results
4.1. Estimation result of the basic model
As explained in the methodology section, OLS, FE and RE are used to
estimate the basic model, namely equation (6). According to the
regression results in Table 2, the regression results of OLS, FE and RE
indicate that energy consumption has contributed to the increase of
carbon emissions in China. In order to correct the impact on the esti­
mation results by the possible heteroscedasticity and autocorrelation of
the Provincial individual perturbation terms, we assumption that the
random perturbation terms are independent and identically distributed.
The feasible generalized least squares (FGLS) is used to further estimate
the basic model. The FGLS estimates are consistent with the estimates of
OLS, FE, and RE, indicating that China’s energy consumption has
increased the carbon emissions. In order to control the endogenous
problems between variables, this paper uses the two-step system
generalized method of moments (SYS-GMM) to estimate equation (7).
From the AR (2) estimation results and the Hansen test, it can be found
that all the instrument variables selected in this model are valid (Blun­
dell and Bond,1998), and there is no second-order sequence correlation
of the random error term. The results of the Wald test indicate that the
overall model is highly significant. Therefore, the regression results of
SYS-GMM are credible. In addition, the SYS-GMM estimates show that
for every 1% increase in energy consumption, carbon emissions increase
by 0.179%, which also indicates that China’s energy consumption has
significantly contributed to the increase in carbon emissions.
4.2. Estimation results of spatial econometric model
4.2.1. Spatial correlation test
The Moran index (Moran’ I) is used to test whether there is spatial
autocorrelation between regions in this paper. Table 3 shows the Mor­
an’I values and their significance levels of carbon emissions in 30
provinces of China from 2006 to 2015 under the geographic weight and
economic weight matrix. It can be seen from Table 3 that under the two
spatial weight matrices, the Moran index of China’s carbon emissions in
2006–2015 is significantly positive, indicating that China’s carbon
emissions show significant positive or spatial dependence in geospatial
space. This result also shows that China’s carbon emissions have a
certain degree of clustering in geospatial space. Therefore, the use of
Table 1
The statistical description of variables.
Variable Definition Unit
CO2 Carbon emission (Ton/person)
energy Energy consumption Million tons of standard coal
Rd R&D investment intensity % 300
fdi Foreign direct investment Billion dollars
pgdp Per capita GDP Ten thousand yuan
str Industrial structure % 300
ERI1 Performance-based environmental regulation – 300
ERI2 Cost-based environmental regulation – 300
8
Resources Policy 67 (2020) 101678
spatial measurement models is necessary. In addition, based on the
geographic weight matrix, we have drawn a scatter plot of the Moran
index for carbon emissions in different provinces in China in 2006 and
2015. According to Fig. 4, carbon emissions in most Chinese provinces
are distributed in the first and lower quadrants, indicating that carbon
emissions have significant local spatial agglomeration characteristics.
4.2.2. Direct effect estimation result
In order to test the direct effect of energy consumption and envi­
ronmental regulation on China’s carbon emissions, this paper uses the
spatial Durbin model to estimate equation (8). The Hausman test results
rejected the random effects model, so the fixed effect model was chosen.
Further, the fixed effect can be further divided into time fixed effect
(TF), spatial fixed effect (SF), time and space double fixed effect (BF). By
comparing the likelihood function values and the goodness of fit under
different fixed effects, the regression results can be made more robust. It
can be seen from Table 4 that under the two different spatial weight
matrices, the coefficients and Significant of the core variables examined
in this paper are very close, indicating that the estimation results are
robust. It is worth noting that both the estimation of economic weights
and geographical weights indicate that energy consumption has signif­
icantly contributed to the increase of carbon emissions in China, and
that energy consumption in neighboring regions has a significant posi­
tive effect on carbon emissions in the region. Therefore, the increase in
carbon emissions caused by energy consumption has a significant spatial
spillover effect. In addition, there is a negative correlation between
environmental regulation and China’s carbon emissions. Regression
results based on the geographic weight matrix show that performance-
based environmental regulations significantly inhibit China’s carbon
emissions. That is to say, for every 1% increase in performance-based
environmental regulations, carbon emissions fall by 0.0367%. Howev­
er, the coefficient of cost-based environmental regulation is not signif­
icant. From the estimation results of economic weight matrix, both
performance-based environmental regulation and cost-based environ­
mental regulation have significantly inhibited the increase of China’s
carbon emissions, and cost-based environmental regulation has the
greatest effect.
4.2.3. Estimation results of decomposition effects
In order to explain the regression coefficient of the lag term of the
spatial Durbin model more specifically, this paper decomposes the total
effect of spatial spillover into direct effect and indirect effect by the
partial differential method of spatial regression model. The direct effect
represents the influence of independent variables in the region on the
dependent variable. The indirect effect reflects the influence of the in­
dependent variable of the neighboring region on the dependent variable
in the region. Since this paper focuses on the impact of energy con­
sumption in space-related regions on local carbon emissions, only the
indirect effects of decomposition effects are discussed. According to
Table 5, we can find that the energy consumption of neighboring areas
promotes carbon emissions in the region. From the regression results of
the geographic weight matrix, for every 1% increase in energy con­
sumption in the nearby areas, carbon emissions in the region increased
by 0.3207%. Estimates of economic weights indicate that for every 1%
Obs Mean Std. Dev. Min Max
300 2.6170 1.7853 0.1880 8.7450
300 1.2914 0.8060 0.0920 3.8899
0.0102 0.0055 0.0009 0.0297
300 0.0295 0.0329 0.0007 0.1654
300 1.4714 0.8606 0.2274 4.6665
0.4158 0.0867 0.2830 0.7965
0.6855 0.3721 0.0011 2.3533
0.0041 0.0034 0.0004 0.0280
H. Wu et al.
Fig. 3. China’s CO2 emissions, energy consumption and environmental regulation levels in the year 2015.
increase in energy consumption in neighboring regions, carbon emis­
sions in the region increase by 0.1664%. In contrast, when the
geographic weight matrix is used as the estimation result, energy con­
sumption in neighboring regions has the greatest contribution to the
carbon emissions in the region.
4.2.4. The estimated results of the moderating effect for environmental
regulation
To test the estimated results of the moderating effect for environ­
mental regulation, this paper uses the spatial Durbin model to estimate
equation (9). Table 6 shows the moderating effect of environmental
regulation between energy consumption and carbon emissions under
different weighting matrices and different environmental regulation
9
Resources Policy 67 (2020) 101678
measures. It can be found that the coefficient of interaction term be­
tween environmental regulation and energy consumption is signifi­
cantly negative. The results also show that as environmental regulation
standards increase, the role of energy consumption in promoting carbon
emissions will gradually decline. Therefore, environmental regulations
contribute to a reduction in carbon emissions from energy consumption.
In addition, according to the regression results of geographical adja­
cency matrix, the performance-based environmental regulation has the
most moderating effect, followed by the moderating effect of cost-based
environmental regulation. The regression results of economic weight
matrix indicate that the most important moderating effect is cost-based
environmental regulation, followed by performance-based environ­
mental regulation.
H. Wu et al. Resources Policy 67 (2020) 101678

Table 2
Estimation result of the basic model.
Variable OLS FE RE FGLS SYS-GMM

lnCO2it-1 0.8055***
(28.5838)
lnenergy 1.1023*** 0.9025*** 0.9893*** 1.0317*** 0.1790***
(54.0858) (15.4615) (24.8740) (30.7155) (5.9874)
lnrd 0.1086*** 0.0144 0.0100 0.0001 0.0107**
(-4.7875) (0.9609) (0.6819) (-0.0090) (-1.9872)
lnpgdp 0.0173 0.1684*** 0.1281*** 0.0529* 0.0089
(-0.7662) (6.4488) (6.3008) (1.8491) (-0.6465)
lnpgdp2 0.0465* 0.0072 0.0053 0.0220 0.0611***
(1.8806) (-0.5961) (-0.4299) (-1.0337) (2.7952)
lnstr 0.1131* 0.3084*** 0.2352*** 0.1004** 0.2643***
(-1.7364) (5.0849) (4.1652) (2.1395) (-6.3962)
lnfdi 0.0276*** 0.0194* 0.0173* 0.0170** 0.0139**
(2.8718) (-1.8536) (-1.7036) (-2.1915) (2.1764)
_cons 0.1454 0.9037*** 0.8298*** 0.6781*** 0.0634
(1.2137) (9.9091) (8.6518) (9.2348) (-0.8792)
R2/Wald Test 0.9445 0.9316 0.9307 1560.67*** 89446.34***
AR (1)/P-Value 3.73[0.000]
AR (2)/P-Value 1.13[0.259]
Hansen Test/p-Value 21.63[0.303]
N 300 300 300 300 270

Note: The prefix “ln” before the explanatory variables denotes taking the logarithmic form. ***, **, and * indicate significance at the 1%, 5%, and 10% levels,
respectively. Figures in () are the t-values or the Z-values of the coefficients. and those in [] are the p-values of the corresponding test statistics.

significance level, which shows that the threshold effect is obvious.

Table 3
Therefore, the impact of energy consumption on China’s carbon emis­
Global correlation test - Moran index.
sions indicates a nonlinear feature due to the environment regulation.
Time Geographic adjacency matrix Economic weight matrix As can be seen from Table 8, energy consumption has a significant
Moran I Z-values Moran I Z-values role in promoting China’s carbon emissions. However, as environmental
2006 0.306*** 3.088 0.160 1.611
regulation standards increase, the role of energy consumption in pro­
2007 0.306*** 3.081 0.173* 1.715 moting carbon emissions is declining. By comparison, it is found that the
2008 0.309*** 3.111 0.184* 1.806 moderating effects of the two environmental regulations are different. In
2009 0.318*** 3.193 0.186* 1.822 areas with low environmental regulations, performance-based envi­
2010 0.299*** 3.007 0.174* 1.713
ronmental regulation has the greatest moderating effects (the coefficient
2011 0.296*** 3.001 0.166* 1.658
2012 0.304*** 3.054 0.186* 1.815 of energy consumption is the smallest), followed by cost-based envi­
2013 0.302*** 3.047 0.173* 1.717 ronmental regulation. In areas with high environmental regulations,
2014 0.294*** 2.968 0.164 1.634 performance-based environmental regulation still has the greatest
2015 0.287*** 2.910 0.177* 1.743 moderating effects. Therefore, the improvement of environmental
Note: ***, **, and * indicate significance at the 1%, 5%, and 10% levels, regulation standards is conducive to energy conservation and emission
respectively. reduction.

4.3. The estimation results of dynamic threshold panel model

As interpreted in the methodology section, we use two step SYS-
GMM threshold panel models and two step DIFF-GMM threshold panel
models to verify the threshold effect, where the threshold variable is
either performance-based environment regulation (ER1) or cost-based
environmental regulation (ER2). Since differential generalized method
of moments (DIF-GMM) first removes the fixed effect of the model by
difference, and then constructs the difference equation by using the lag
phase of the explanatory variable as the instrumental variable. There­
fore, it can reduce the endogeneity between variables and the difficulty
of searching for instrumental variables. However, the system general­
ized method of moments (SYS-GMM) estimates the difference equation
and the horizontal equation as an equation, which not only improves the
efficiency of the estimation, but also estimates the coefficients of the
model that do not change with time, making the estimation result more
accurate. Therefore, in the specific analysis, the estimation results of
SYS-GMM are used as the analysis standard, the DIF-GMM estimation
results are only for comparison. Table 7 shows the results of the
threshold value and confidence intervals for performance-based envi­
ronment regulation (ER1) and cost-based environmental regulation
(ER2). According to the Wald statistics and its P-values, all the dynamic
threshold models with the different threshold variables reject the null
hypothesis of the null hypothesis of no threshold effects at the 1%
4.4. Regression analysis of regional heterogeneity
Considering the typical regional differences in the development of
eastern, central and western China, the relationship between energy
consumption, environmental regulation and carbon emissions may also
have three regional heterogeneity characteristics. In the following dis­
cussion, we divided the sample into three regions, the eastern, central,
and western regions, to further examine the relationship between energy
consumption, environmental regulation, and carbon emissions. It can be
found from Table 9 that energy consumption has significantly contrib­
uted to the increase in carbon emissions, whether in the eastern region,
the central region, or the western region. Moreover, energy consumption
in the western region contributes the most to carbon emissions. In the
eastern and central regions, there is a negative correlation between
performance-based environmental regulation and carbon emissions, but
the coefficients are not significant. In the western region, performance-
based environmental regulation promotes an increase in carbon emis­
sions. In addition, the relationship between cost-based environmental
regulation and carbon emissions in the eastern and central regions is
significantly negative, indicating that the improvement of environ­
mental regulations in the eastern region contributes to energy conser­
vation and emission reduction. In the western region, cost-based
environmental regulations have also led to an increase in carbon emis­
sions. From the perspective of the moderating effect of environmental

10
H. Wu et al. Resources Policy 67 (2020) 101678

Fig. 4. Scatter plot of the Moran index of China’s CO2 emissions in 2006 and 2015.

5. Discussion
Table 4
The direct effect estimation results of space Durbin models.
According to the empirical results, the following discussions could be
Variable Space Durbin models drawn.
Geographic adjacency matrix Economic weight matrix First, energy consumption has significantly promoted China’s carbon
lnCO2it-1 0.7855*** 0.78210*** 0.8084*** 0.8017***
emissions, and there is a spatial spillover effect. The reason may be that
(21.06) (20.32) (24.85) (23.43) since the “Eleventh Five-Year Plan” China has adopted energy conser­
lnenergy 0.2622*** 0.2466*** 0.3184*** 0.3139*** vation and emission reduction as a binding indicator, the growth rate of
(4.74) (4.40) (7.33) (7.28) national energy consumption has slowed down, but the total volume
ER1 0.0367*** 0.0278**
continues to rise (Begum et al., 2015). According to BP World Energy
(-3.48) (-2.54)
ER2 1.4980 2.1007* Statistical Yearbook 2018, China’s energy consumption increased by
(-1.33) (-1.81) 3.1% in 2017, and it has become the country with the largest increase in
lnrd 0.0292** 0.0232* 0.0306*** 0.7293 global energy consumption for 17 consecutive years. In addition, with
(-2.51) (-1.92) (-2.59) (-0.65)
the gradual implementation of structural reforms on the supply side, the
lnpgdp 0.0271** 0.0283** 0.0317* 0.0406**
(-2.20) (-2.24) (-1.78) (-2.22)
proportion of China’s coal in total energy consumption has declined in
lnpgdp2 0.0298 0.0443** 0.0095 0.0278 recent years (Bloch et al., 2015). The proportion of coal consumption in
(1.61) (2.44) (0.41) (1.21) 2018 is below 60% for the first time, but coal is still the most important
lnstr 0.0245 0.0006 0.0253 0.0766 primary energy source and the main cause of China’s greenhouse effect
(-0.17) (-0.00) (0.15) (0.44)
(Bloch et al., 2015). A large amount of energy consumption and un­
lnfdi 0.01871*** 0.0206*** 0.0105* 0.2697
(2.96) (3.23) (1.66) (1.38) reasonable energy structure have caused severe environmental pollution
ρ 0.2304*** 0.18155*** 0.0138 0.0286 and ecological damage (Yu et al., 2018). Since the national “Eleventh
(4.09) (3.22) (0.22) (0.44) Five-Year Plan” has included pollutant emission reduction into the
W*lnenergy 0.1981** 0.2137** 0.1674** 0.1414* performance appraisal system of government officials, local govern­
(2.03) (2.12) (2.11) (1.75)
R2 0.9723 0.9721 0.9933 0.9710
ments want to obtain the GDP growth effect brought by high-energy and
Log-likelihood 538.0112 534.9207 528.1243 525.4497 high-pollution enterprises, and want to reduce pollution in their juris­
Fixed effect models SF SF SF SF diction as much as possible. Therefore, the establishment of polluting
N 300 300 300 300 factories tends to be in the provincial border zone or in the lower reaches
Note: The prefix “ln” before the explanatory variables denotes taking the loga­ of the river to reduce environmental governance costs (Cai et al., 2016).
rithmic form. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, However, due to the influence of natural factors such as wind direction
respectively. Figures in () are the t-values of the coefficients. and topography, carbon dioxide can easily spread to surrounding areas,
causing spillover effects (Meng et al., 2017). On the other hand, the
regulation, the coefficient of interaction term between environmental barriers to entry of high-energy industries are low, and they have
regulation and energy consumption is significantly negative in all three become the main industries for economic development in various re­
regions, indicating that environmental regulation can effectively regu­ gions (Dou and Han, 2019). Due to the industrial agglomeration effect
late carbon emissions from energy consumption. and the spatial spillover effect, the junction area has become a transfer
area and a radiation area of high energy-consuming industries.
Second, there is a negative correlation between environmental

11
H. Wu et al. Resources Policy 67 (2020) 101678

Table 5
Estimation results of decomposition effects.
Variable Geographical adjacency matrix Economic weight matrix

Direct effect Indirect effect Total effect Direct effect Indirect effect Total effect

lnenergy 0.2739*** 0.3207*** 0.5946*** 0.3148*** 0.1664*** 0.4813***

(5.06) (3.50) (7.86) (7.12) (2.67) (6.97)

Note: The prefix “ln” before the explanatory variables denotes taking the logarithmic form. ***, **, and * indicate significance at the 1%, 5%, and 10% levels,
respectively. Figures in () are the t-values of the coefficients.

advancement (Zhao and Sun, 2016). High-pollution, high-emission FDI

Table 6 will be rejected by environmental regulations (Hao et al., 2018). The
The estimated results of the moderating effect for environmental regulation.
polluting FDI that has entered the market will also gradually withdraw
Variable Space Durbin models due to the inability to withstand high-intensity environmental regula­
Geographical adjacency Economic weight matrix tions (Lin and Sun, 2016). Therefore, the high-quality foreign capital
matrix attracted by the host country brings advanced production technology
lnCO2it-1 1.1112*** 0.9970*** 1.0150*** 1.2749*** and management technology to the host country, which enhances the
(34.65) (39.36) (39.45) (50.44) technological innovation capability and spillover effect of the region
lnenergy 0.9550*** 0.4816*** 0.9644*** 0.3089* (Cai et al., 2016). From the perspective of regional differences, the larger
(7.61) (2.94) (7.29) (1.78)
industrial scale in the eastern region has produced more serious envi­
ER1*lnenergy 0.2063*** 0.1147**
(-4.15) (-2.06) ronmental pollution problems, and the environmental regulation in the
ER2*lnenergy 0.0630*** 0.1497*** region is more stringent (Shen et al., 2017). For example, the average
(-3.38) (-8.38) value of environmental protection investment in the eastern provinces
ER1 0.1562*** 0.1583*** from 2000 to 2015 was 9.867 billion yuan, higher than the national
(-4.06) (-2.97)
ER2 9.2291** 0.1747***
average of 4.101 billion yuan. Therefore, environmental regulations can
(-2.45) (-10.26) effectively suppress the increase in carbon emissions. In the central re­
lnrd 0.0460 0.1332*** 0.0732* 0.6822*** gion of Hubei, Hunan, Shanxi and Henan, there are pilot countries for
(-1.12) (-2.93) (-1.85) (-18.20) SO2 emissions trading. At the same time, Hunan and Hubei are
lnpgdp 0.1792*** 0.0526 0.1267** 0.4577***
state-level pilot zones, and pilot reforms have been implemented in
(-3.85) (-1.20) (-2.02) (-7.29)
lnpgdp2 0.1588*** 0.0414 0.0559 0.2231*** areas such as emission standards, emissions trading, and resource and
(-2.78) (0.72) (-0.75) (3.08) energy price mechanisms. These environmental protection system
lnstr 0.6978*** 0.1195 0.2980 0.3335 mechanisms have promoted the implementation of energy conservation
(-3.51) (0.50) (-1.29 (1.48) and emission reduction.
lnfdi 0.0483** 0.0413** 0.0384* 0.0840***
(2.17) (2.06) (1.78) (4.03)
Third, the role of energy consumption in promoting carbon emissions
ρ 0.1150** 0.1611*** 0.0613 0.7156*** has declined as the increase of environmental regulations. Therefore,
(2.15) (2.70) (0.96) (14.39) environmental regulation has a good moderating effect on the carbon
W*lnenergy 0.7614*** 0.4116* 0.4803*** 1.2376*** emissions generated by energy consumption. The possible reason is that
(4.27) (1.81) (2.93) (6.43)
since the “Ninth Five-Year Plan”, China has emphasized the path of
R2 0.9515 0.9716 0.9615 0.5812
Log-likelihood 176.5474 266.8522 188.8722 249.4884 sustainable development that saves energy and protects the environ­
Fixed effect models SF BF SF SF ment. The Third Plenary Session of the 18th CPC Central Committee
N 300 300 300 300 proposed to use the system to protect the ecological environment, and
Note: The prefix “ln” before the explanatory variables denotes taking the loga­ environmental regulation began to become an important aspect of
rithmic form. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, government functions. It is worth noting that the government directly
respectively. Figures in () are the t-values of the coefficients. intervenes in the energy consumption of high-energy, especially tradi­
tional fossil energy enterprises, by enacting various environmental
regulation and carbon emissions, but environmental regulation in the regulations laws and regulations and government administrative orders,
western region has promoted carbon emissions. The reason may be that which is conducive to reducing energy consumption (Zhou and Feng,
environmental regulation has increased the burden on high-energy en­ 2017). Second, with the continuous deepening of the supply-side
terprises, forced companies to eliminate backward production capacity, structural reforms, the entry threshold for traditional fossil energy
and choose to develop green industries such as high-tech industries and development and utilization has been continuously improved, and
modern service industries (Feng et al., 2012); Strict environmental environmental standards and regulations have become more stringent.
regulations will stimulate enterprises to increase investment in energy This will directly affect the investment decisions of high-energy, high-­
conservation and emission reduction, and achieve the goal of meeting pollution companies, forcing these industries to turn to green develop­
environmental regulation standards through technological ment (Xie et al., 2017). As a result, environmental regulations have

Table 7
The threshold value of different threshold variables and its confidence interval.
Threshold variable Dynamic threshold model Threshold value Wald statistics P-value BS 95% confidence interval

Lower Higher

ER1 SYS-GMM 0.3321 14.4158*** 0.0000 1000 0.2194 1.3037

DIFF-GMM 0.3321 14.4158*** 0.0000 1000 0.2194 1.3037
ER2 SYS-GMM 0.0011 11.6195*** 0.0000 1000 0.0010 0.0104
DIFF-GMM 0.0011 11.6195*** 0.0000 1000 0.0010 0.0104

Note: ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively. The probability is evaluated based on 1000 replications of regression. The
confidence interval estimation of the threshold parameter is based on the method of Hansen (1999).

12
H. Wu et al. Resources Policy 67 (2020) 101678

Table 8

Note: The prefix “ln” before the explanatory variables denotes taking the logarithmic form. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively. Figures in () are the t-values of the coefficients.
There are 11 provinces in the eastern region including Beijing, Tianjin, Hebei, Liaoning, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, and Hainan. There are 8 provinces in the central region including
Shanxi, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei, Hunan; there are 11 provinces in the western region, including Inner Mongolia, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, Shaanxi, Gansu, Qinghai,
0.24***
Regression result of dynamic threshold panel models.

(-12.74)
0.81***
(22.30)
0.3526
Variable ER1 as a threshold value ER2 as a threshold value

110
SYS-GMM DIFF-GMM SYS-GMM DIFF-GMM

lnCO2it-1 0.8603*** 0.5179*** 0.8911*** 0.5669***

0.23***

0.73***
(30.97) (15.75) (43.35) (13.50)

(17.34)
0.0966
(-5.65)
lnpgdp 0.0489 0.0418 0.0141 0.1226

110
(-1.63) (0.81) (-1.29) (1.14)
lnpgdp2 0.0334 0.1284*** 0.0212 0.0125
(0.94) (2.74) (-1.51) (0.13)

0.08***

0.88***
(16.56)
0.0845
Lnrd 0.0038 0.0878** 0.0006 0.0695

(5.25)

110
(-0.73) (-2.38) (0.14) (-1.50)
lnstr 0.2462*** 0.0712 0.2298*** 0.0873
(-6.26) (-0.98) (-5.23) (-0.81)
lnfdi 0.0101** 0.0244*** 0.0099*** 0.0202

0.19***

0.76***
(16.64)
0.0378
(3.42)
(2.36) (2.62) (3.35) (1.40)

110
lnenergyðER1 � CÞ 0.2618*** 0.8829***

Western China
(4.71) (7.65)
lnenergyðER1 > CÞ 0.1416*** 0.6533***

1.31***

0.83***
(4.92) (8.46)

(12.89)

(22.58)
0.3580
lnenergyðER2 � CÞ 0.1886*** 0.5166***

110
(8.15) (7.79)
lnenergyðER2 > CÞ 0.1052*** 0.5106***
(5.60) (6.44)

0.18***
_cons 0.0378 0.0137

0.66***
(15.47)
0.0961
(-5.63)
(-0.69) (-0.27)

80
AR(1) 3.78 2.27 4.01 1.67
[0.000] [0.023] [0.000] [0.096]
AR(2) 1.51 0.64 1.46 0.05

1.63***
[0.132] [0.520] [0.143] [0.958]

0.70***
(15.91)
0.0277
(-2.91)
Hansen test 23.21 17.37 24.1 13.2
[0.841] [0.237] [0.807] [0.154]

80
Wald test 49974.48*** 8155.93*** 89328.64*** 4115.5***
[0.000] [0.000] [0.000] [0.000]

0.05***
N 270 240 270 240

0.64***
(12.54)
0.0245
(-2.73)
Note: The prefix “ln” before the explanatory variables denotes taking the loga­

80
rithmic form. ***, **, and * indicate significance at the 1%, 5%, and 10% levels,
respectively. Figures in () are the z-values of the coefficients, and those in [] are
the p-values of the corresponding test statistics.

0.70***
(14.78)
0.0014
(-0.65)
0.13

80
promoted the upgrading of energy consumption structures, which in
Central China

turn has reduced carbon emissions. Third, in the context of increasing

1.11***

0.66***
environmental regulations, producers will turn to the replacement of

(15.39)
0.1023
(5.83)

traditional technology products with new technologies, new elements

80
and new products, which will lead to an increase in energy efficiency.
Environmental regulation will increase the industry’s entry barriers,
0.17***

leading to an increase in the prices of production factors in the polluting

(-17.78)
0.62***
(19.83)
0.5148

industry, forcing related companies to stop production or transfer.

110

Therefore, environmental regulation can promote various production

factors from low-productivity non-clean production industries to
Estimation results of OLS in different regions of China

1.47***

high-productivity clean production industries, promote industrial value

(-12.78)

0.62***
(17.23)
0.3542

chain upgrades, and thus greatly improve energy efficiency (Zhao et al.,
110

2015). Environmental regulation can reduce carbon emissions by

improving energy efficiency.
0.04***

0.62***
(11.30)
0.0257
(-2.80)

6. Conclusions and policy implications

110

In this study, OLS, FE, RE, FGLS and SYS-GMM are used to test how
energy consumption and environmental regulation affect China’s car­
0.67***
(13.28)
0.0067
Regression results in different regions.

(-1.42)
0.15

bon emissions. The spatial Durbin model is used to examine the spatial
110

spillover effects of energy consumption and environmental regulation

Eastern China

on carbon emissions. In addition, the moderating effects of environ­

mental regulation on carbon emissions from energy consumption have
1.00***

0.63***
(18.05)

(20.22)
0.5224

also been tested in the spatial Durbin model. A newly developed dy­
110

Ningxia and Xinjiang.

namic threshold panel model was used to study the relationship between
energy consumption and carbon emissions under different environ­
mental regulations. The results show that energy consumption signifi­
ER1*lnenergy

ER2*lnenergy

cantly promotes the increase of carbon emissions, and energy

lnenergy
Variable

consumption in neighboring regions promotes the growth of carbon

Table 9

_cons
ER1

ER2

emissions in the region; environmental regulation can inhibit the

R2
N

13
H. Wu et al.
increase of carbon emissions as a whole, but promotes carbon emissions
in western China. The rise of energy consumption has a significant role
in promoting carbon emissions, but this promotion has declined as the
level of environmental regulation has increased. On the basis of the basic
estimation results, we can derive several relevant and straightforward
policy implications, as follows.
First, the government should formulate relevant policies to contin­
uously optimize the energy consumption structure and strive to get rid of
the shackles of traditional energy as soon as possible. From the impact of
energy emissions on carbon emissions, traditional energy consumption,
represented by coal and refined oil, has the most serious impact on
carbon emissions. Therefore, it is necessary to gradually reduce the
consumption of coal and refined oil in light of the demand for energy
development in China. According to the survey results of the national
coal and refined oil energy market, the traditional energy reduction plan
was formulated to gradually reduce the proportion of coal and refined
oil in energy consumption. At the same time, the government should
continuously increase the proportion of new energy sources such as
natural gas, electricity and solar energy in the energy consumption
structure. From the proportion of China’s current use of natural gas,
compared with the United States, the United Kingdom and other coun­
tries, there is still a big gap, indicating that there is a lot of room for
expansion in the natural gas market. Therefore, the government should
pay attention to the development of the natural gas industry, provide
relevant preferential policies, support the development of natural gas
enterprises, and increase the proportion of natural gas in energy con­
sumption. In particular, it is necessary to increase the laying of natural
gas pipelines in remote towns, villages, mountains and other places. The
government should increase the structural adjustment of power and
energy construction, reduce the proportion of thermal power industry,
and increase the proportion of clean energy such as natural gas power
generation solar power generation and wind power generation. It is
necessary to actively expand energy reforms represented by new energy
vehicles, reduce the number of fuel vehicles, and encourage independent
innovation and development of new energy vehicle enterprises. For
example, it is possible to actively encourage government departments to
increase the proportion of purchases of new energy vehicles when pur­
chasing official vehicles, and to play a leading role in expanding the new
energy vehicle market.
Second, the government should formulate differentiated environ­
mental regulation policies that can influence technological progress,
industrial structure, and foreign direct investment. Specifically, enter­
prises should be encouraged to increase investment in technology
research and development in the field of energy conservation and
emission reduction, and give full play to the leading role of technological
innovation in energy conservation and emission reduction. The gov­
ernment should adopt environmental regulation policies to adjust and
optimize industrial structure and industrial structure, coordinate the
relationship between industrial development and resource use, and
gradually guide the transformation of industrial structure and industrial
structure to resource-saving and environment-friendly. Third,
technology-oriented and clean foreign direct investment should be
encouraged to be introduced to China. It is worth noting that China’s
environmental regulations have different effects on carbon emissions in
different regions. For example, environmental regulations help reduce
carbon emissions in the eastern and central parts of China. However, in
western China, environmental regulation policies have instead
contributed to an increase in carbon emissions. Therefore, the govern­
ment should avoid blindly and unrealistically increase the intensity of
environmental regulation when formulating environmental policies.
Environmental regulation policies should be formulated according to
the differences between regional economic development levels and
carbon emission intensity. For example, environmental regulation pol­
icies should continue to be implemented and improved in eastern and
central China. In the western region, the government should pay
attention to the dynamic adjustment of the intensity of environmental
14
Resources Policy 67 (2020) 101678
regulation, timely adjust the intensity of environmental control to a
reasonable level, and avoid a fixed level of environmental regulation. In
addition, the government should effectively combine “performance-
based environmental regulation” with “cost-based environmental
regulation” to improve the diversity and effectiveness of environmental
control tools. This type of environmental regulation can give enterprises
a certain flexible space for emission reduction, and encourage enter­
prises to seek more advanced technologies and means to reduce pollu­
tion emissions.
Last but not the least, the government should take measures to
promote the moderating effects of environmental regulation on energy
structure and energy efficiency. Regarding environmental regulation
and energy structure, the government should formulate environmental
regulation policies with equal emphasis on rewards and punishments.
The government’s incentive policy should be biased towards the
development and utilization of new energy companies, thereby pro­
moting energy conservation and the use of new energy. The punitive
measures can be used to constrain the outdated and backward energy
consumption behavior of enterprises, and the energy consumption
structure can be continuously optimized through interest regulation (for
example, income redistribution). This not only reduces the total con­
sumption of fossil energy itself, but also enables the provinces to reach
high-position areas with strong environmental regulation effects, and
can further exert the control effect of environmental regulation on fossil
energy consumption. Regarding environmental regulation and energy
efficiency, the government should formulate tax incentives and financial
subsidies to encourage enterprises to increase their support for techno­
logical innovation. In this way, enterprises can rely on technology to
reduce energy consumption in key energy-using industries and improve
energy efficiency of the overall industry. The government should
establish a market system conducive to the trade of energy-saving
technologies and energy-saving products, and clarify the property
rights of technological innovations, thereby stimulating enterprises to
carry out technological innovation. The government should further
optimize environmental supervision tools, establish a sustainable envi­
ronmental supervision policy system, and improve the innovation
capability and energy efficiency of enterprises. In addition, the gov­
ernment can reduce energy consumption by adjusting the proportional
relationship between industries, compressing high-energy industries,
and developing low-energy industries, recycling industries, and high-
tech industries.
Although this study for the first time quantitatively investigates the
nonlinear impact of energy consumption and environmental regulation
on carbon emissions in China, it still has some limitations that could
inspire future related researches. For instance, due to data availability,
this study only considers total amount for the variable of provincial
energy consumption. However, given that China’s energy consumption
is dominated by coal, the energy consumption structure is also critical to
carbon emissions. Therefore, when the data of provincial energy mix is
accessible, the future research can integrate energy consumption
structure into the research framework for a more comprehensive and
reasonable analysis, and the corresponding empirical results would have
more important policy implications as the policymakers could also take
into consideration of improving energy consumption structure on the
basis of the empirical findings. Moreover, due to the remarkable gaps in
economic and social development across different cities within a prov­
ince, the nexus of energy consumption，environmental regulation and
carbon emission may differ across regions. Therefore, it is meaningful
and reasonable to investigate the relationship of the three indicators for
different areas and regions when sub-provincial level (e.g., city- and
county-level) data become available. The use of city-level data could not
only well control for potential heterogeneity among cities within a
province but also enhance the explanatory power because of the sig­
nificant increase in the sample size.
H. Wu et al.
CRediT authorship contribution statement
Haitao Wu: Conceptualization, Project administration, Formal
analysis, Writing - review & editing. Lina Xu: Data curation, Writing -
original draft. Siyu Ren: Software, Visualization, Writing - original
draft, Writing - review & editing, Formal analysis. Yu Hao: Conceptu­
alization, Methodology, Funding acquisition, Supervision. Guoyao Yan:
Writing - review & editing, Validation.
Acknowledgments:
The authors acknowledge financial support from the National Nat­
ural Science Foundation of China (71761137001, 71403015,
71521002), the key research program of the Beijing Social Science
Foundation (17JDYJA009), the Beijing Natural Science Foundation
(9162013), the National Key Research and Development Program of
China (2016YFA0602801, 2016YFA0602603), the Special Fund for
Joint Development Program of the Beijing Municipal Commission of
Education, and the silk road foundation of Xinjiang University
(JGSL17021). The authors are also very grateful to three anonymous
reviewers, Managing Editor Prof. Dr. Gary Campbell for their valuable
and insightful comments, which helped to substantially improve the
quality of this paper. The usual disclaimer applies. The usual disclaimer
applies.
Appendix A. Supplementary data
Supplementary data to this article can be found online at https://doi.
org/10.1016/j.resourpol.2020.101678.
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Dr. Yu Hao is currently a full professor at the Center for Energy and Environmental Policy
Research (CEEP), Beijing Institute of Technology (BIT). He earned a Ph.D. in Hamburg
University in 2012. Currently, his main research interests include environmental policy,
ecological economics and energy economics. So far, he has published over 70 papers in
peer reviewed journals in these fields of research.
Mr. Haitao Wu is currently a master student on economics at College of Economics and
Management, Xinjiang University.
Ms. Lina Xu is currently a master student on economics at College of Economics and
Management, Xinjiang University.
Mr. Siyu Ren is currently a master student on economics at College of Economics and
Management, Xinjiang University.
Mr. Guoyao Yan is currently a master student on applied economics at School of Man­
agement and Economics, Beijing Institute of Technology.