1. Introduction
In March 2024, the World Meteorological Organization released the Global Climate in 2023 report. The report pointed out that the levels of greenhouse gases, surface temperature, ocean heat, and acidification on record have been broken again, even showing a sharp change in trend. Frequent climate change could have both physical and transitional impacts on economic activity, the former being direct impacts due to climate risk events, and the latter being indirect impacts due to governance policies adopted by governments [
1]. In the context of the complicated evolution of climate risks, the complexity of climate and environmental governance is also increasing [
2]. As an important means of coping with climate change and an important factor influencing economic activity, the effects of climate policy uncertainty deserve to be further explored.
In the face of increasing climate risks, many countries have adopted a series of active measures to save energy and reduce emissions, and energy efficiency is one of the important indicators to measure the effectiveness of these environmental protection measures [
3]. Moreover, improving energy efficiency not only helps to alleviate the problem of energy shortage but also effectively reduces ecological pressure and climate risks, which is an important measure to achieve sustainable development and address climate change [
4]. According to the existing research results, the influencing factors of energy efficiency can be divided into macro and micro categories. The macro level includes environmental legislation [
5], urban architectural design [
6], import trade [
7], and other factors. The micro level includes factors such as the digital transformation of enterprises [
8] and investment efficiency [
9]. It can be seen that energy efficiency is a hot topic, and its influencing factors are worthy of further exploration.
Although existing studies have conducted multidimensional drivers of energy efficiency, few studies have examined the impact of climate policy uncertainty on urban energy efficiency. Enterprises occupy a dominant position in the urban energy use system, and the consumption of traditional energy, such as coal, is one of the biggest sources of urban air pollution. In the face of climate policy uncertainty, enterprises tend to actively take environmental measures, such as green innovation [
10] and increasing renewable energy consumption [
11,
12], thus improving urban green total factor energy efficiency. At the same time, policy uncertainty also increases public awareness of environmental protection [
13], strengthens government supervision and punishment of corporate pollution [
14], and forces enterprises to improve energy efficiency. In addition, the CPU also promotes the use of clean energy, optimizes the energy consumption structure [
15], and further promotes the improvement of GTFEE in cities.
Therefore, this study explores the impact of climate policy uncertainty (CPU) on urban GTFEE and investigates the influencing mechanism between them. First, we apply a two-way fixed panel model to explore the effect of the CPU index on urban GTFEE. Secondly, this paper uses a mediating effect model to explore the impact mechanism of CPU on urban GTFEE through two possible channels: increasing public environmental concern and optimizing urban energy consumption structure. Finally, we explore the heterogeneity effect of climate policy uncertainty on the improvement of green total factor energy efficiency in cities with different development degrees and different resource types.
The possible marginal contribution of this study is as follows: First, we place CPU and urban GTFEE under the same research framework, expanding the current research on urban energy efficiency and complementing the existing research at the theoretical and empirical levels; Second, we explore the transmission mechanism between public environmental concern and urban energy consumption structure and expand the transmission path analysis of the CPU promoting urban energy efficiency; Finally, we conduct a heterogeneity analysis from two perspectives of urban development degree and resource-based cities and analyze the difference in promotion effect in cities with different economic conditions and economic structures.
The remaining parts of this paper are organized as follows: the second part is the literature review; the third part is the theoretical analysis and research hypothesis; the fourth part is the research design; the fifth part is the empirical results; the sixth part is heterogeneity analysis; and the seventh part is the conclusion and policy implications.
2. Literature Review
The existing research has explored the issues of climate policy uncertainty and energy efficiency extensively, and the literature closely related to this study focuses on two main areas: firstly, exploring the economic impacts of climate policy uncertainty; secondly, studying the factors influencing urban energy efficiency.
Existing studies have not reached a consensus on the economic impact of CPU, which is mainly divided into positive and negative effects. For one thing, the positive effects of CPU are mainly reflected by increasing the use of clean energy [
11], promoting green innovation [
16], increasing government research and development subsidies [
10], encouraging enterprises to invest across regions [
17], reducing environmental management costs [
18], and reducing carbon emissions [
19]. For example, Li et al. (2024) [
16] argue that climate policy uncertainty can promote green innovation activities of Chinese agricultural enterprises. Sun et al. (2024) [
17] propose that CPU makes it more likely for companies to decentralize their business activities to different regions to diversify their exposure to climate risks.
On the contrary, other scholars argue that the CPU has negative effects. CPU can not only cause dramatic fluctuations in clean energy markets [
20], financial markets [
21], and carbon markets [
22] but also reduce productivity [
23] and respond to climate change slowly [
24]. For example, Wang et al. (2023) [
25] believe that frequent climate policy fluctuations increase instability in carbon markets, green bond markets, and energy price markets, while Ren et al. (2024) [
26] propose that climate policy fluctuations inhibit the financialization process of enterprises. In summary, the economic impact of climate uncertainty risk is complex, which may bring both market fluctuations and potential losses and opportunities for sustainable development, and its effects are worthy of in-depth study.
Another type of literature related to this paper is research on the drivers of urban energy efficiency. From the macro level, the factors influencing urban energy efficiency are as follows: industrial structure [
27], technological progress [
28], low carbon policy [
29], For example, Gao et al. (2023) [
29] verified that low-carbon policies can alleviate the problem of labor and capital mismatch, improving the GTFEE of cities. At the micro level, digital transformation at the enterprise level [
8], import expansion [
7], digital technology innovation [
30], labor productivity [
31], and green innovation elasticity. Wu et al. (2024) [
32] also have a significant impact on energy efficiency. At present, the existing research on urban energy efficiency is relatively abundant, but research on urban energy efficiency from the perspective of climate policy needs to be further expanded.
In summary, the current research on CPU and urban energy efficiency has been more extensive, but there are still the following deficiencies: Firstly, most of the existing research on the macro-effects of climate policy uncertainty focuses on the market level, and there is a lack of investigation on the effect of the urban cities; Secondly, few scholars have conducted in-depth research on the factors affecting urban energy efficiency from the perspective of climate policy, and it is particularly important to clarify the effect of CPU on urban GTFEE in the context of climate risk complexity.
3. Theoretical Analysis and Research Hypothesis
This study argues that climate policy uncertainty can significantly improve the energy efficiency of cities as show in
Figure 1. The reasons are as follows: it is difficult for enterprises to accurately predict how the government intervenes in economic behavior [
2], and such policy uncertainty may improve the enterprises’ sense. Therefore, when climate risk intensifies, enterprises may be threatened from two aspects. On the one hand, direct operating costs resulting from climate risk events [
33]. According to the precautionary savings theory, in the face of potential climate risk events, enterprises may manage their funds more carefully to ensure the robustness of their business activities [
34]. On the other hand, it comes from the signal released by increasing climate policy uncertainty, which encourages enterprises to increase their R&D investments to cope with potential risks [
35]. According to the real options investment theory, innovation investment of enterprises is not only to pursue short-term benefits but also to accumulate long-term value, which can be regarded as a kind of option investment [
17]. When enterprise managers feel the increasing uncertainty of climate policy, they are more inclined to choose investment projects with sustainable development potential [
36], thus promoting the improvement of the city’s GTFEE. In addition, the government needs to actively respond and compensate for complex climate risks and adjust climate policies, which could increase the construction of urban green infrastructure [
37], reduce urban pollution emissions, and improve the GTFEE of the city. Therefore, we propose the following:
Hypothesis 1: Climate policy uncertainty can significantly improve the urban GTFEE.
Firstly, when governments frequently adjust their climate policies, the media and the public tend to worry about uncertainty, leading them to focus more on issues such as environmental protection and pollution control, and actively urge the government to implement environmental governance through public expression [
38]. This trend not only increases the public’s attention to environmental issues but also promotes the government’s positive response in formulating and implementing environmental policies. Secondly, with the continuous improvement of environmental awareness, the public has made higher demands for the environmental behavior of local governments and enterprises. This inhibits the possible collusion between local governments and enterprises to a certain extent and enables regulators to be more strict and effective in supervising the pollution emission behavior of enterprises [
39]. This strict regulatory environment has forced enterprises to pay more attention to environmental protection issues, and actively adopt green transformation measures to reduce pollution emissions and improve GTFEE in cities. Therefore, we propose the following:
Hypothesis 2: Climate policy uncertainty improves the urban GTFEE by increasing public environmental concern.
Uncertainty makes it difficult for enterprises to predict the environmental protection requirements and standards they may face in the future. Therefore, to avoid potential legal risks and market pressures, enterprises have to strengthen internal environmental governance in advance to adapt to the changing policy environment and ensure their sustainable development [
40]. Strengthening the internal environmental governance of enterprises promotes the transformation of traditional energy to clean energy, optimizes the energy consumption structure of the city, and then improves the green all-factor energy efficiency of the city. Specifically, on the one hand, strong internal environmental governance can enable the market to eliminate projects with low resource utilization and production efficiency [
41], ensure that the remaining investment projects have good environmental performance and efficient production capacity, optimize the urban energy consumption structure, and thus promote the improvement of green total factor energy efficiency. On the other hand, strong internal environmental governance may increase enterprise costs in the short term, but in the medium and long term, green technology innovation promoted by environmental regulation will lead to the improvement of production efficiency and clean energy utilization rate [
42], as well as the reduction of pollution emission. Thus, the energy consumption structure of the city can be optimized and the green total factor energy of the city can be improved. Therefore, this paper proposes a third hypothesis:
Hypothesis 3: Climate policy uncertainty improves the urban GTFEE by optimizing the urban energy consumption structure.
There is considerable heterogeneity in the impact of climate policy uncertainty on the improvement of GTFEE in cities. First, the improvement of energy efficiency involves multiple links, such as energy production, conversion, transmission, and use, all of which require corresponding financial investment and technical support. According to the technological innovation theory, the more severe the financing constraints, the more difficult it is for firms to generate greater technological innovation [
43]. Compared with developed cities, firms in developing cities undoubtedly face more severe financing constraints and face greater obstacles to green technological innovation activities [
44]. In addition, developed cities tend to have higher levels of industrialization and are more likely to adopt clean energy and environmental technologies. Therefore, we argue that the sensitivity of GTFEE to climate policy uncertainty is heterogeneous across cities at different levels of development.
Second, China has a large number of resource-based cities, a quarter of which are at risk of resource depletion and urgently need to seek opportunities for economic transformation [
45]. The economic activities of resource-based cities are often highly concentrated in one or a few resource industries and highly dependent on natural resources, which makes the economic structure of cities relatively fragile and will cause serious economic losses once climate risk events trigger market fluctuations [
46]. In the macro context of sustainable development, compared with non-resource-based cities, climate policy uncertainty may make the public and enterprises in resource-based cities pay more attention to environmental issues [
47] and show more enthusiasm in addressing climate risks and environmental problems. Therefore, we propose the following:
Hypothesis 4: The improving effect of climate policy uncertainty on urban GTFEE is more obvious in developed and resource-based cities.
7. Conclusions and Policy Implications
Based on panel data from 253 prefecture-level cities in China from 2005 to 2020, this study explores the contribution of CPU to urban GTFEE. The results of this paper show that, first, climate policy uncertainty is positively correlated with urban green total factor energy efficiency, and this conclusion is still robust after a series of endogenous problems are excluded. Secondly, climate policy uncertainty promotes urban green total factor energy efficiency by increasing public environmental concern and optimizing the urban energy consumption structure. Finally, in developed cities and resource-based cities, climate policy uncertainty has a better effect on promoting urban green total factor energy efficiency.
The limitation and improvement of this study lies in the lack of discussion on the decomposition of the green total factor energy efficiency index. The green total factor energy efficiency index has multiple forms of measurement and can be further divided into the technology progress index and technology efficiency index. Future studies can further investigate the promoting role of climate policy uncertainty from the perspective of index decomposition. In addition, future studies can also consider introducing more mechanism variables to examine the impact of different factors on the relationship between the two. For example, the digital level can be introduced to explore its regulatory effect and to more comprehensively analyze the driving factors and influencing channels of urban green total factor energy efficiency.
Based on the above research conclusions, this paper puts forward the following three suggestions. First, strengthen the forward-looking climate policy formulation: To improve green total factor energy efficiency in cities, governments should strengthen forward-looking climate policy formulation. Forward-looking means that policymaking needs to fully consider future climate change trends and their impact on urban energy systems to make adaptive adjustments in advance, to avoid unnecessary distress and costs to businesses and residents caused by frequent changes. By being more forward-looking, governments can give the public and businesses an environmental policy outlook to more effectively guide the green transformation of urban energy systems, improve energy efficiency, and reduce greenhouse gas emissions.
Second, promote green technology innovation and application: The key to improving urban green total factor energy efficiency is to promote green technology innovation and application. The government should increase investment in the research and development of green technology, encourage enterprises to strengthen technological innovation and promote the market-oriented application of green technology. At the same time, we can also attract more social capital to invest in green technology innovation by setting up green technology innovation funds and providing tax incentives. In addition to strengthening international cooperation and exchanges, the introduction of foreign advanced green technology and experience is also an important way to improve urban energy efficiency. Through the promotion of green technology innovation and application, it can promote the optimization and upgrading of urban energy systems, improving energy efficiency.
Third, improve the energy management and regulatory system: Improving the energy management and regulatory system is an important guarantee for improving the urban green all-factor energy efficiency. The government should establish a sound energy management system, clarify the responsibilities and division of labor of various departments, and strengthen energy data statistics and monitoring. At the same time, the government should strengthen the supervision of the energy market, crack down on illegal energy use, and ensure fair competition and healthy development of the market. By improving the energy management and supervision system, we can ensure that the government’s environmental policies are effectively implemented, and thus promote the green transformation of the urban energy system.