A Green Bargain? The Impact of an Energy Saving Program on Productivity Growth in China’s Iron and Steel Industry

The impact of environmental regulation on firm productivity has been long been debated, however, mainly for western economies and with limited firm-level evidence. We study the impact of a large-scale national energy saving program (the Top 1000 Energy-Consuming Enterprises Program, or T1000P, 20062010) in China on firm productivity in the iron and steel industry. The T1000P assigned targets for reducing the energy consumption of approximately 1000 most energy-consuming industrial firms. Using detailed data from the China Industrial Census on 5,340 firms for the period of 2003 to 2008, we estimate a positive effect of the T1000P on firms in the iron and steel industry. Specifically, we find T1000P firms are associated with significantly greater annualized TFP change (an increase of 3.1 percent on average), suggesting the competitiveness of treated firms increased. Effects on technical change and scale efficiency change are positive and statistically significant, and contribute about equally to the overall treatment effect. Results are robust to instrumenting for policy exposure and other alternative specifications. Private benefits to firms from the policy likely reflect the combination of incentives and targets applied under the program.