Can vertical integration drive the sustainable development of the renewable energy industry? The roles of environmental policy and market competition.

Abstract

The literature on environmental management points out that promoting the sustainable development of the renewable energy (RE) industry is an important pathway to achieving green development. To address cyclical fluctuations in the industry and uncertainties in the external environment, Chinese RE industry has sparked a wave of supply chain vertical integration. However, whether vertical integration strategies can effectively drive the sustainable development of the RE industry remains uncertain. To address this gap, we conducted a study focusing on Chinese RE firms from 2011 to 2022. Employing a two-way fixed effects model, our findings revealed several vital insights: (1) Vertical integration strategies contribute to reducing business risks for RE enterprises. Specifically, it enhances market power and supply chain efficiency, thereby lowering business risks. However, it also increases management costs, thereby elevating business risks for the enterprises. (2) RE subsidies, as an incentive-based environmental policy, and market competition amplify the effectiveness of vertical integration strategies in mitigating business risks. (3) Vertical integration has a significant impact on the business risks of enterprises with high managerial, innovative, and fundraising capabilities, but it has no significant effect on the business risks of those with low managerial, innovative, and fundraising capabilities.