Did carbon dioxide emission regulations inhibit investments? A provincial panel analysis of China

Abstract

Investments, especially fixed asset investments, greatly affect carbon dioxide (CO₂) emissions. When investments are concentrated in regions with high CO₂ emissions and high fossil energy consumption, the CO₂ emission reduction targets in these areas are difficult to reach in the short term, and the cost of CO₂ emission abatement is high. The current CO₂ emission regulations focus on existing production activities and consumption behaviors. However, whether an investment, which may affect CO₂ emissions in the long term, is effectively inhibited by CO₂ emission regulations has not been investigated in previous studies. Using panel data from 30 provinces in China between 2003 and 2012, we tested whether the amount of provincial investment was constrained or promoted by the provincial CO₂ emission regulations by creating a panel model with provincial samples. The results revealed that CO₂ emission regulations did not inhibit the growth of an investment, but they stimulated investments to varying degrees in different provinces. A relatively positive result is that provinces with stronger CO₂ emission regulations exhibited a relatively small contribution to investment promotion, while provinces with weaker CO₂ reduction policies demonstrated a relatively large contribution to investment growth. We also found that investment was correlated with the growth rate of the gross domestic product (GDP) in the northeastern and western provinces. Finally, we proposed policy implications based on the utilization of policy tools from the perspectives of investment, energy structure, and local protectionism.