title: The impact of environmental regulations on green transition performance —— evidence from China
Creators: name: Chang, Kaiwen
Publisher: name: University of Reading
Year: 2025

description: In recent years, global warming issues caused by environmental pollution have sparked widespread debate. Globally, countries are actively paying attention to climate change and exploring green transition modes. One promising and effective strategy can be green innovation (GI). However, market failures suggest that government intervention is necessary to promote the effectiveness of technological innovation, and hence, its positive social impacts on emissions reduction. In this context, this thesis develops three empirical studies to investigate the relationship between the environmental regulation (ER) and green transition performance. The first study (Chapter 3) investigates how the ER influences the relationship between GI and CO2 emissions reduction in China. Employing data from 30 provinces during the period 2003–2019, this study applies the panel fixed-effect, spatial durbin model (SDM), system generalised method of moments model (SYS-GMM), and difference�in-difference (DID) model to investigate this relationship while considering endogeneity and spatial impact. The results indicate that ERs positively moderate the impact of green knowledge innovation (GKI) on CO2 emissions reduction but have a much weaker moderation effect on green process innovation (GPI). Among different types of regulatory instruments, the investment-based environmental regulation (IER) is the most effective in promoting the relationship between GI and emissions reduction, followed by the command-and-control-based environmental regulation (CER). Expenditure-based environmental regulation (EER) is less effective, and can encourage short-termism and opportunistic behaviour among enterprises, who may opt to paying the discharge fee to avoid substantial investment in GI. Moreover, it is found green technological innovation has spatial spillover effects on CO2 emissions in neighbouring regions, particularly for IER and CER. Lastly, the findings remain robust considering the heterogeneity across regions due to the different economic stages and industrial structures. This chapter shows that the market-based regulatory instrument, IER, works best in promoting the emissions reduction effect of GI among Chinese enterprises. It also encourages the emissions reduction effect of GKI, which may assist enterprises in achieving long-term sustained growth. The chapter recommends further development of the green finance system to maximise the positive impact of this policy instrument. The second study (Chapter 4) investigates the impacts of China’s Green Credit Guideline (GCG) on enterprises’ GI performance by employing a panel data on the Chinese listed enterprises from 2007 to 2019. The findings reveal that the GCG enhances the GI performance of both heavily polluting (HPEs) and green (GEs) enterprises. The HPEs focus more on GI increment, while GEs strive to promote both GI quality and increment. Heterogeneity analyses show that state-owned enterprises (SOEs) and high external finance dependent (EFD) enterprises are more motivated to enhance GI when stimulated by the GCG. Furthermore, penalty-based environmental regulation has no significant moderating effects on the relationship between the GCG and GI for both types of enterprises. Incentive-based environmental regulation has positive moderating effects on GI overall for HPEs, and only on GI quality for GEs. Voluntary environmental regulation has positive moderating effects for both types of enterprises and this effect is more prominent for GI quality performance, especially for GEs. Moreover, the mechanism analysis shows that the GCG can enhance GI performance by improving the efficiency of green investment utilisation. To further promote the positive impact of the GCG, more targeted bank lending should be encouraged towards the HPEs to assist enterprises’ structural transformation. Meanwhile, different environmental policy instruments should also be effectively deployed together to leverage their synergistic effects. The third study (Chapter 5) mainly explores the effect of green bonds in promoting enterprises’ green transformation. As an important part of the green financial system, green bonds are issued to provide a market-based financing channel for environmentally friendly projects, such as GI, energy conservation, and emissions reduction. Using panel data of Chinese listed enterprises from 2007 to 2019, this study investigates the impacts of green bond issuance (GBI) on GI performance. The empirical results show that the GBI can enhance the GI performance of both green bond issuing and peer enterprises, with the former one paying more on the GI quality and the latter focusing more on GI increment. In addition, the GI performance of green bond issuing enterprises is better than that of green bond peer enterprises after GBI. Furthermore, the heterogeneity analysis shows that external supervision (formal and informal ways) is important to effectively trigger the GI incentives of GBI. The relationship between GBI and GI is more prominent among SOEs, non-heavily polluting enterprises, and in the eastern region. Such relationship remains hold for green bond peer enterprises in general. The mechanism analysis reveals that GBI effectively promotes the GI performance of bond issuing enterprises and their peers through different channels. For the former, it acts through the promotion of R&amp;D investment but for the latter, it enhances the capital utilisation efficiency. Consequently, it is suggested that effective polies should be set in place to ensure that the desired positive outcomes of green bond issuance are achieved, and enterprises are guided towards more sustained development path.