INTERNATIONAL BUSINESS AND DEVELOPMENT
Students:
Bigi Francesca
Barka Saida
Putifarri Jasmine
ENVIRONMENTAL ECONOMICS
Professor Paolo FABBRI
Academic year 2014/2015

Z. Wang and C. Feng (2014)
Retrieved from: http://www.tandfonline.com/doi/pdf/10.1080/00036846.2014.929629

Purpose of the paper:
To reveal the impact of environmental regulation on China's regional total-factor energy efficiency during the period 2003-
2010.
3 main parts:
1) introduction of China's features in terms of environment
2) analysis of three models: no, weak and strong environmental constraints
3) results of the study and policy implications


Rapid growth but great stress on resources and environment

China's energy consumption in 2010: 19,3% of global level

Measures to solve inefficiency → energy-saving and emission reduction targets, adjustment of industrial structure, elimination of excess capacity

Any result??

In order to measure the efficiency of energy utilization we can distinguish two methods:


The single-factor method
The total-factor method

Only economic outputs (GDP) or also noneconomic outputs (pollutants) into the analysis?
Including all or just a part of them can change the outcome of the research!
This study aims to shed light not only on the general impact of environmental regulation in
China, but also on its macro-economic cost.

Statistical Model: DEA Method
Region-based Analysis

Sample → 29 provinces, 2003-2010. Mainland
China divided into 3 regions:
- Eastern region
- Central region
- Western region

Model
•
•
- Inputs → capital stock; labor; energy consumption
- Output → GDP
• - Constraint → environmental indicator (h = greater the h, more serious the environmental problems)

Evaluation of Environmental Regulation Impact on China’s TFEE
1 st Model → No environmental constraints
2 nd Model → Weak environmental constraints
3 rd Model → Strong environmental constraints
Implication: environmental regulation has an economic cost (later discussed...)
Empirical Analysis What is the efficiency of these models?


WER almost no changes occur in regional
TFEE. Why? Because the environmental tax system not mature enough
SEV high efficiency of this regulation. The nationwide TFEE will increase by 6.39%

We find differences in the impact of strong environmental regulation among the three main Chinese regions:



Eastern region → TFEE already at high level/not easy to be further improved under strong environmental regulation
Western region → backward economy/ no investment in environmental governance = low efficiency on energy utilization = potentially it could be improved by far more than Eastern situation.
Central region → it falls in between
Remind: Enhancing environmental regulation certainly leads to an increase in TFEE, but huge economic costs in nationwide figures → regulation costs & policies.

Extensive economic development
Dependence on fossil energy (coal), with backward technology and outdated equipment high environmental pollution
Higher regulation costs: “China’s nationwide regulation cost rose by 4.40 times”

Environmental stress = Regulation cost
Regional GDP
 The nationwide environmental
regulation cost accounts for more that 5% of the country’s GDP
 The rebound (2009-2010) may be due to the contribution of the international financial crisis
Source: Z. Wang and C. Feng, p. 3374

 Strong environmental regulation  high economic costs  threat to economic growth
 Trade-off between economic development and environment safeguard
Recommendations
1. Encourage firms to change their extensive production mode in the direction of green production mode
2. Make special policies for firms willing to apply green production technology
3.
As there are differences between the regions, policies need to adapt to the specific situation and background of each region