How does environmental regulatory stringency affect energy consumption? Evidence from Chinese firms

This paper uses a recently available firm-level dataset in China, constructs a new indicator of environmental regulatory stringency, and tests the hypothetical impact and mechanisms on energy consumption. The results show that stricter environmental regulation can reduce energy consumption, with energy efficiency improve-ment and energy-structure transition as channels. Further heterogeneity analysis shows that the effect and mechanisms differ with the firm or industry characteristics, such as firm ownership, firm scale, pollution in-tensity, and energy intensity. These results highlight the necessity of considering firm heterogeneity when we intend to improve firms' energy performance through stricter environmental regulation. This paper proposes policy suggestions, including fiscal and financial instruments for renewing energy-efficient facilities, R&D of energy-efficiency and clean-energy technologies, and energy structure transitions.