Environmental regulation and industrial energy efficiency: new evidence from partially linear functional-coefficient models

In light of increasing environmental degradation and energy shortages, it is imperative to enhance energy efficiency through environmental regulation. Nevertheless, environmental regulation has been subject to intense debate regarding its impact on industrial energy efficiency. This study investigates the influence of economic growth on the nexus between environmental regulation and industrial energy efficiency based on provincial panel data collected in China from 2006 to 2019 using a partially linear functional-coefficient method. Results suggest that formal environmental regulation affects industrial energy efficiency differently depending on economic advancement. Only when GDP per capita is between 64,153 and 160,714 yuan can formal environmental regulation significantly improve industrial energy efficiency. The number of provinces with significant impact decreases first and then increases during the study period and the sign of marginal effect changes in most provinces from positive to negative over time. Particularly, formal environmental regulation in Beijing no longer promotes energy efficiency because its economic development has reached a turning point. Additionally, informal environmental regulation can significantly improve industrial energy efficiency after GDP per capita exceeds 62,926 yuan, and such impact grows with economic development. These findings suggest that policymakers should tailor environmental regulatory measures based on local conditions to achieve long-term sustainable development.