The impact of environmental regulation on fossil energy consumption in China: Direct and indirect effects

Strengthening the implementation of environmental regulation is one of the key measures to prevent further energy depletion and environmental deterioration. This paper focuses on complicated relation between environmental regulation and fossil energy consumption. We theoretically identified the direct and indirect paths of environmental regulation that affect fossil energy consumption and analyzed the relationship between the two. To identify the indirect impact of environmental regulation on fossil energy consumption, we incorporated three types of technology (e.g., production technology, pollution abatement technology, and backstop technology) into our model. On the theoretical basis, we then evaluated the impact of environmental regulation on fossil energy consumption in China by applying both non-spatial models and spatial econometric models. In the direct path, energy-saving effect of environmental regulation in China is dynamic and yields complex results from the Green Paradox and compliance cost. As for indirect effects, we find that current environmental regulations have promoted technological progress in production to induce energy savings but failed to drive technological advancements in pollution abatement and backstop to guarantee a sustainable energy development. Based on the findings, some corresponding policy implications are provided. (C) 2016 Elsevier Ltd. All rights reserved.