Impact of environmental regulations on the efficiency and CO2 emissions of power plants in China

The power industry is the largest air polluter in China, contributing nearly 40% of CO2 emissions and 60% of SO2 emissions. Under mounting pressure to improve standards of environmental protection, it is imperative that the industry increases the efficiency and environmental performance of power plants in China. We investigate the impacts of three different environmental regulations on efficiency improvement and CO2 reduction: command and control regulations (CCR), market-based regulations (MBR), and government subsidies (GS). We find that MBR and GS have a positive impact on efficiency improvement and CO2 reduction. However, CCR have no significant impacts. This finding has important implications since CCR dominates China's environmental policy. We discuss the policy implications of these findings, such as China should further release the potential of MBR in the power industry, instead of solely relying on CCR; and pay more attention to the coordination of different policy instruments.