How does environmental regulation affect environmental performance? A case study of China's regional energy efficiency

Environmental regulation has been recognized as an important way to directly improve environmental performance or indirectly impact environmental performance through increasing environmental innovation. The present paper constructs an energy and carbon emission total factor productivity index using the Malmquist-Luenberger productivity index and data envelopment analysis. The proposed technique is used to measure the environmental performance of 30 Chinese provinces during the period 2010-2015. The energy and carbon emission total factor productivity measure is divided into a pure technical efficiency index and a technical progress index to provide detailed environmental performance information. Then an ordinary least squares model is adopted to analyse the impact of environmental regulation on environmental innovation operation and environmental performance by hypothesis testing. The empirical results show that environmental regulation and environmental innovation have positive direct effects on environmental performance and that market-based environmental regulation has a positive indirect effect on environmental performance by increasing environmental innovation.