Reconciling economic growth with environmental protection: The role of optimizing energy allocation

Abstract

Rapid economic growth in developing countries often comes at the cost of environmental degradation. This paper examines the role of energy allocation optimization, providing a novel perspective and empirical evidence on reconciling economic growth and environmental protection. Using data from Chinese industrial enterprises, we estimate the extent to which energy misallocation impairs economic performance, and confirm its exacerbating effect on pollution, as firms with excessive energy tend to generate more emissions due to lower energy efficiency and greater industry stickiness. The pollution effect also varies with the scale of energy input. Firms with larger energy inputs benefit from economies of scale, leading to lower marginal pollution per unit of energy. When reallocating energy among firms, the most concerning cases are those that both over-invest in energy and lack scale efficiency. Our findings help enhance the precision of environmental policy by offering micro-level evidence to support more differentiated and targeted regulatory approaches.