Mechanisms of policy intervention for China's transformation of the low-carbon economy

Abstract

The low-carbon city pilot policy (LCCPP) is a key initiative designed to promote low-carbon development and sustainable economic growth. To maximize its environmental and economic benefits, it is essential to conduct a comprehensive evaluation of the policy's influence on the transformation of the low-carbon economy (TLCE). This paper spans the period from 2003 to 2021, analyzing a sample of 281 Chinese cities at the prefecture level or higher. First, the research employs the super-efficient EBM-GML model, incorporating non-desired outputs, to measure the TLCE. Second, the progressive difference-in-differences model integrates the TLCE into the assessment framework of the LCCPP, allowing for an empirical analysis of its effects on the transformation. Third, a heterogeneity analysis is conducted from various perspectives, including the "Hu Huanyong line, " coastal and inland cities, and environmental protection priority cities. Finally, the paper investigates the linear mechanisms of the LCCPP on the TLCE across three dimensions: environment, economy, and technology. The environmental dimension reflects urban ecological resilience, the economic dimension pertains to the development level of the digital economy, and the technological dimension relates to scientific and technological innovation activity. Additionally, the paper examines the nonlinear mechanisms through which the LCCPP affects the TLCE, focusing on environmental regulation and factor endowment. The results indicate that: 1) The LCCPP significantly facilitates the TLCE in the experimental areas, with findings remaining robust across various tests, including parallel trend test, SDID, a test of heterogeneity in treatment effects, and PSM-DID. 2) Heterogeneity analysis shows the policy's impact is stronger in cities south of the "Hu Huanyong line, " as well as in coastal cities and environmental protection priority cities. 3) Linear mechanism analysis indicates that urban ecological resilience, the development level of the digital economy, and scientific and technological innovation activity serve as partial intermediaries in the TLCE influenced by the LCCPP. 4) Nonlinear mechanism analysis indicates that environmental regulation and factor endowment influence TLCE in nonlinear ways, with effects varying across different threshold stages. Specifically, when environmental regulation and factor endowment are at varying developmental stages, the LCCPP effect tends to follow a "first suppressed, then elevated" trend. Based on these findings, the paper recommends expanding the scope of the LCCPP and sharing experiences in low-carbon development to support achieving the "dual-carbon" goal within China's innovation strategy.