Something for nothing? The effect of voluntary environmental program on energy intensity

Abstract

The environmental outcomes of voluntary environmental programs (VEPs) remain a controversial issue, especially in developing countries. We advance this subject by examining the impact of the ISO14001 Environmental Management System on firm-level energy intensity in China. The paper applies a difference-in-differences approach combined with propensity score matching to a unique panel dataset including all manufacturing firms obtaining ISO14001 certification during the period of 2008–2016. The results indicate that although VEP increases both energy consumption and output, the impact on output is significantly greater, leading to a reduction in energy intensity. This reduction is primarily achieved through capital upgrades and innovation rather than foreign trade. Furthermore, VEP exhibits spillover effects at the supply chain level, primarily benefiting upstream firms through mercantile credit rather than downstream firms. Finally, firms continue to benefit from VEP even after exiting this program, as their energy intensity does not increase.