Does Environmental Decentralization Promote Renewable Energy Development? A Local Government Competition Perspective

Abstract

Renewable energy development is a long-term means of addressing the climate challenge and achieving environmental sustainability. This study examines the relationship between environmental decentralization, local government competition, and renewable energy production using panel data from 30 Chinese provinces from 2000 to 2021. The empirical results show that environmental decentralization significantly inhibits renewable energy development, indicating a lack of foresight among local governments in environmental governance issues. In addition, local government competition amplifies the detrimental effects of environmental decentralization on renewable energy production. Although the decentralization of environmental administrative power hinders renewable energy production, the decentralization of environmental monitoring power promotes it. However, insufficient evidence is available to conclude that regional characteristics and threshold variables can alter the inhibitory effect of environmental decentralization on renewable energy production, even though the effects of environmental decentralization on the production of renewable energy exhibit geographical variation and non-linear characteristics. The findings of this study contribute to optimizing environmental policies to motivate local governments to pursue long-term environmental governance goals.

1. Introduction

Energy is the material basis for continuing human civilization and a vital driving force for economic and social development. For a long time, China’s energy industry has been highly dependent on fossil energy, mainly coal, and energy consumption has been characterized by low energy efficiency and high emissions [1]. High economic expansion has resulted in colossal energy consumption which has led to some issues, including resource depletion, environmental pollution, and carbon emissions. In recent years, the wind power photovoltaic industry has accelerated [2], the cost of applying clean energy technologies has decreased significantly, and the concept of 100% renewable energy has been gaining momentum in the international community, with countries such as Uruguay taking the lead in attempts to deploy large-scale renewable energy in their energy systems to achieve 100% renewable electricity [3]. A 1000-km high-voltage direct current overhead transmission line being built in Turkey to transport energy generated by solar power plants from potentially high-energy-emitting areas to the most energy-deficient regions could meet the energy needs of Turkey’s growing economy [4]. The electricity obtained from wind farms in Bozcaada and Gokceada (Turkey) will be transported to Istanbul and is expected to contribute to Turkey’s energy supply and security [5]. South Korea has set a goal of net-zero energy buildings. By 2023, all public buildings with a floor area of more than 500 square meters must use renewable energy systems to meet 80% of their primary energy consumption [6]. The harmonious development of economic systems and ecosystems depends heavily on renewable energy production [7,8]. Unlike traditional fossil energy sources, developing and utilizing renewable energy sources produces less harmful waste and breaks the environmental cycle [5,9]. In addition, using renewable energy sources enriches energy diversity and guarantees a stable energy supply. As an active participant in global climate governance, China is committed to achieving carbon peak and neutrality. Introducing this strategic goal means adjusting the energy mix, and developing renewable energy is thus a necessity for China to cope with the resource and environmental crisis and promote green and sustainable economic and social advancement. The “14th Five-Year Plan” of renewable energy development is heavily focused on lowering the percentage of fossil energy consumption to roughly 20% in 2025 to realize a high-quality leap in the development of renewable energy. The goal is that by 2025, annual renewable energy production will amount to about 3.3 trillion kilowatt hours. Total renewable energy consumption will reach the equivalent of about one billion tons of standard coal. Under the Chinese model of political centralization and economic decentralization governance [10], the scientific division of environmental management between central and local authorities is the institutional basis for achieving these renewable energy development goals [11,12].

The core of the environmental management system is the division of the environmental decentralization level, which refers to the best distribution of environmental protection functions among the various levels of government [13,14]. A clear boundary between the central and local functions’ allocation standards can be observed based on the principle of subsidiarity, that is, central government will not interfere with local affairs without authorization. Instead, it will give sufficient space for local governance so that localities can leverage their information advantages and job convenience and proactively use the environmental management power granted by the central government to provide public goods and services through environmental administration, environmental supervision, and environmental monitoring according to the ecological and environmental conditions of their jurisdictions. Local governance can also promote the ecological and environmental development of their jurisdictions. Although the subsidiarity principle emphasizes respect for individual rationality, central government still has a pivotal position in the political system under the Chinese-style decentralized system, and will specifically address matters that cannot be solved at a local level [15], reflecting the superiority of the central government and the subordination of the local level. According to the subsidiarity principle, the government should formulate environmental and energy policies appropriate to the functions of the state. Renewable energy is a typical public good. There is widespread support for replacing fossil energy with renewable energy to address global climate change [16]. However, non-renewable energy sources still dominate China’s energy supply structure, and the share of renewable energy generation is less than 30%, lower than the world average. The optimization of China’s energy mix is not only constrained by technological innovation and financial investment but also by distorted incentives and insufficient constraints under a decentralized system [17].

Since 2012, the central government has increasingly introduced environmental indicators, including environmental quality and green GDP, into the performance evaluation system of local governments at all levels within the framework of high-quality economic growth and ecological civilization creation. However, political and economic incentives still dominate performance appraisal [18]. When political performance and promotion are closely related to the economic and social growth of a region, local officials may temporarily slow down the process of ecological civilization construction to win the GDP tournament and achieve faster political promotion if these assessment objectives conflict in practice and even go so far as to lower environmental regulation standards, introduce high energy-consuming enterprises eliminated by developed countries or regions, and prioritize the development of large infrastructure projects with significant economic benefits [19]. The promotion pressure on local officials will affect policies’ implementation, making it challenging to achieve green goals, such as renewable energy and carbon emission reduction, on time and smoothly [20]. Environmental decentralization has an essential impact on the R&D expenditure of renewable energy. Local competition under the decentralization system will promote marketization by the central government, which favors the efficient provision of ecologically friendly public goods and services [21]. Hence, environmental decentralization is an important policy tool to regulate the supply of public goods [22].

Whether local governments can build a modern energy system in line with public interests depends greatly on the distribution of management power. Decentralization is related to the efficiency of energy governance and the prospects of the renewable energy industry. Local government competition, environmental decentralization, and renewable energy production have a complicated relationship. To clarify the relationship between the three and point out a practical path for China’s energy transformation, we need to answer the following questions. Does environmental decentralization incentivize local governments to support investment in renewable energy industries? Under what conditions does the disincentive effect of environmental decentralization intensify? How do environmental decentralization and local government competition affect renewable energy production? This study investigates the relationship between environmental decentralization and renewable energy production from the perspective of local competition to address these questions, reveal the institutional reasons for renewable energy, provide theory and evidence for China’s energy transformation, and promote China to better adapt to the changing global energy landscape and low-carbon economy.

The main contributions of this paper are as follows: (1) Previous literature has neglected the institutional factors that affect renewable energy. This study discusses the relationship between environmental decentralization and renewable energy and explains that different dimensions of decentralization have practical significance for renewable energy. (2) This study places environmental decentralization, local government competition, and renewable energy production in the same framework. It discusses the non-linear relationship between environmental decentralization and renewable energy, broadening the research ideas in this field. (3) This study highlights that environmental decentralization will lead local governments to focus on short-term economic growth rather than long-term sustainable development in the context of government competition. Therefore, the central government should reform the traditional GDP-driven competition model and formulate scientific and environmental policies to reasonably guide the behavior of local governments to improve the efficiency of renewable energy development and utilization to promote the development of economic and social green transformation.

The remaining chapters are organized as follows. Literature review and theoretical analysis are included in Section 2, methodology and data are covered in Section 3, the empirical results and analysis are provided in Section 4, and conclusions and policy implications are covered in Section 5.

2. Literature Review and Theoretical Analysis

2.1. Environmental Decentralization versus Environmental Centralization

Environmental decentralization is superior in several aspects to the existing centralized environmental system. First, to a certain extent, environmental decentralization creates more opportunities for local governments to promote renewable energy development. Under the existing environmental energy system, decision-making and resource allocation are in the hands of the central government, leaving little room for local governments to play a role. Local governments will gain more autonomy and self-determination through an environmental decentralization system. They will be better able to promote renewable energy projects based on the resources and needs of their regions. Second, an environmental decentralization system can promote competition among local governments and enhance the efficiency and renewable energy development level. Under the existing environmental energy system, local governments need more incentives to compete and are prone to misuse of resources, inefficient operations, and lack of innovation. Competition among local governments for renewable energy projects will increase productivity, pushing them to be more active in research and innovation to improve the efficiency and quality of renewable energy development.

The system can also play a key role in places other than China. First, the system could stimulate competition among local governments worldwide to promote renewable energy development. With growing global concern for environmental protection, governments have developed policies to promote renewable energy development. A decentralized system gives local governments more decision-making power. They can flexibly formulate relevant policies according to the resources and conditions of their regions, thus promoting the growth of the renewable energy market. Second, introducing the system will encourage local governments to exchange experiences. Different local governments have different experiences and practices in renewable energy production, and some have made remarkable achievements in technology research and development, project construction, and policy measures, while others may have shortcomings and difficulties. Through such a system, local governments can accelerate their renewable energy development process by learning from the successful experiences of other local governments. In addition, environmental decentralization will further promote green technology innovation and development on a global scale. In the competition to attract investment and promote economic growth, local governments will actively encourage innovation and advancement of the renewable energy industry in their regions. Such innovation and development will further boost the penetration and application of renewable energy globally, providing a more sustainable, clean, and reliable energy supply.

Central government usually controls decision-making and resource allocation in centralized systems, often leading to inefficiencies and inflexibility. On the other hand, environmental decentralization means decentralizing decision-making and resource allocation to local governments, enabling them to understand local energy needs better. Local governments can make decisions that can be adapted more quickly to local conditions while also making better use of local resources, thus reducing the cost of energy development. In existing centralized systems, central governments are often required to engage in complex planning and scheduling to ensure energy supply and stability. However, such centralized decision-making often makes it difficult to adapt to local needs due to the central government’s limited knowledge of local conditions and differences in energy needs and resources. In contrast, environmental decentralization allows local governments to adapt and make decisions based on local conditions, thereby better adapting to local needs and resources, resulting in more stable and reliable energy development because local governments can better control and manage local energy resources, reducing uncertainty and risk and improving the economics of energy development.

2.2. Environmental Decentralization and Renewable Energy Development

The theory of environmental federalism explains the roles assumed by the central and local governments in environmental management matters [23], and the theory seeks to investigate the best distribution of environmental management authority at all governmental levels [24]. The federal and local governments jointly develop and carry out environmental policies in an environmental federalism system [25], and the separation of central and local control of environmental protection results in environmental decentralization [11]. The development of environmental federalism has been in an oscillating evolution of centralization and decentralization and has been hotly debated in academia. Some scholars argue that local governments are primarily responsible for environmental management programs [26]. In contrast, others argue that central governments are primarily responsible only for supporting research on environmental issues and providing environmental information [27].

The establishment of environmental federalism is influenced by various factors, including the country’s level of development, the institutional setting, and the area’s level of distinctiveness [28]. Political factors play an essential role in influencing environmental standards [29]. The decentralization of China’s environment can be seen in the operation of the environmental hierarchy, where local governments have the authority to decide on funding, staffing, and other important matters for local environmental protection bureaus, thereby effectively controlling environmental policy within their jurisdictions [30]. Environmental decentralization in China is a basic principal-agent problem with asymmetric knowledge between the central and local levels because of competing interests, collusion, and resource limitations [28].

The effect of decentralization on the growth of renewable energy depends on the specific local context and the power play between the central and local levels [22]. Many scholars have studied fiscal decentralization’s impact on renewable energy. By analyzing the connection between fiscal decentralization and the generation of renewable energy, Shahbaz et al. (2022) and Sun et al. (2023) found that the relaxation of centralized policies can significantly stimulate renewable energy transition [31,32]. Using data from seven OECD member countries from 1990–2018, Su et al. (2021) empirically test whether fiscal decentralization improves energy efficiency and contributes to a shift in the energy mix toward sustainability [33]. Other researchers have explored how environmental decentralization affects environmental pollution. Environmental decentralization could alleviate China’s haze problem by reducing carbon emissions [34,35]. Moderate environmental decentralization could also increase local government subsidies for green technology innovation, encourage the adoption of environmental technologies, improve the use of cleaner production and end-of-pipe treatment technologies [36], promote competition among local governments, optimize factor allocation efficiency, considerably reduce ecological pollution, and improve the efficiency of public service delivery to the local ecological environment [37]. However, with the increase of environmental management authority, the economic objectives of local governments may conflict with environmental objectives, resulting in a loosening of environmental regulations by local governments, a lowering of pressure on businesses, and a lack of incentives for green innovation, energy conservation, and emissions reduction [38], leading to hindrances in renewable energy development goals. In theory, adopting renewable energy can generate many positive changes within a country, such as economic growth, investment subsidies, stable energy prices, and labor demand [39]. However, in policy implementation, the positive externalities and non-exclusivity of renewable energy public goods tend to induce “free-rider” behavior in local governments [40], which weakens the effectiveness of energy policy implementation. As a result, the first hypothesis in this study is derived.

Hypothesis 1.

Environmental decentralization has significantly hindered the development of renewable energy at the provincial level in China.

2.3. Role of Local Government Competition

Selective enforcement of regulations is frequently caused by incentive conflicts between local government behavioral preferences and environmental governance aims [41,42]. Multiple studies indicate that local governments have actively reduced external costs like environmental protection and social responsibility as a result of the long-standing GDP-oriented view of performance and official promotion competitions [43] and to provide different advantageous circumstances, including significant amounts of foreign direct investment, to draw capital inflows and safeguard the competitive advantage of local businesses. Foreign investment promotes a region’s economic development while negatively impacting the environment [44]. The local authorities have inherited backward industries eliminated by developed countries, and the energy consumption of these industrial enterprises is huge, which is not conducive to environmental protection and energy structure transformation and upgrading [45]. The development of renewable energy is a long-term tool for environmental management, but the short-sighted behavior of local governments will lead to a decrease in public policy support in this regard. In other words, in the context of economic globalization, political and economic uncertainties will impact renewable energy indicators, and the development of the renewable energy industry may also face adverse effects due to short-term cost increases and supply chain bottlenecks [16].

Local government initiatives may impact how much environmental decentralization supports renewable energy production because it gives local governments the authority to oversee and approve environmental matters. It has been argued that environmental decentralization has a positive moderating effect that facilitates local governments to strengthen environmental regulations, weakens the adverse effects of economic growth target constraints on environmental pollution, generates a race to the top and pollution halo effect, and increases incentives for firms to commit to green technology innovation [46,47], thus promoting the development of regional green energy. However, it has also been argued that excessive environmental decentralization encourages strategic interactions and race to the bottom among local governments regarding environmental regulation, which inhibits regional green innovation [48] and slows the pace of energy transition.

Competition among local governments exacerbates the negative effects of environmental decentralization. On the one hand, local governments may manipulate the structure of environmental funds’ allocation in a promotion tournament to obtain a more significant competitive advantage [49], increasing infrastructure development while decreasing investment in controlling outdated industrial pollution sources. This step would improve economic output and lessen environmental restrictions on manufacturing companies [50]. At the same time, local government competition may also exacerbate problems such as rent-seeking and corruption [51,52], leading to collusion between government and business, relaxation of environmental regulation standards, and easing the monitoring of highly polluting, profitable, high-tax, and employable firms [53]. This approach promotes productivity of enterprises, from which the government gains more revenue and higher economic performance; however, this leads to greater consumption of energy resources, mainly reflected in the use of traditional fossil fuels, hindering the development of renewable energy [54]. Based on the previous statements, the second hypothesis of this paper is proposed.

Hypothesis 2.

Local government competition significantly strengthens the inhibitory effect of environmental decentralization on renewable energy development.

3. Methodology and Data

3.1. Model Setting

This study built a two-way fixed effect model referencing prior studies [55,56] to investigate the connection between environmental decentralization and renewable energy production. The empirical model is set as follows:

$${\mathrm{RE}}_{\mathrm{it}}=\mathsf{\alpha }+{\mathsf{\beta }}_1{\mathrm{ED}}_{\mathrm{it}}+\mathsf{\gamma }{\mathrm{Control}}_{\mathrm{it}}+{\mathsf{\mu }}_{\mathrm{i}}+{\mathsf{\lambda }}_{\mathrm{t}}+{\mathsf{\epsilon }}_{\mathrm{it}},$$

(1)

where RE denotes renewable energy, ED denotes environmental decentralization, and Control is a set of control variables. The correlation coefficients of the constant, the explanatory variable, and the control variables, respectively, are represented by the parameters α, β₁, and γ. The subscript i denotes the province, t denotes the year, unobservable provincial- and time-fixed effects are denoted by μ_i and λ_t, and ε is a random disturbance term.

To further test the mechanism of the role of environmental decentralization and local government competition in renewable energy development, refer to Bu et al. (2019) [57]. Local government competition is set as a moderating variable, and an interaction term model was developed to test whether the relationship between environmental decentralization and renewable energy production changes due to local government competition. Based on Equation (1), the local government competition variable LGC_it, the interaction term ED_LGC_it of environmental decentralization, and local government competition are added. The model is shown as follows:

$${\mathrm{RE}}_{\mathrm{it}}=\mathsf{\alpha }+{\mathsf{\beta }}_1{\mathrm{ED}}_{\mathrm{it}}+{\mathsf{\beta }}_2{\mathrm{LGC}}_{\mathrm{it}}+{\mathsf{\beta }}_3\mathrm{ED}\_{\mathrm{LGC}}_{\mathrm{it}} + \mathsf{\gamma }{\mathrm{Control}}_{\mathrm{it}}+{\mathsf{\mu }}_{\mathrm{i}}+{\mathsf{\lambda }}_{\mathrm{t}}+{\mathsf{\epsilon }}_{\mathrm{it}}.$$

(2)

To investigate the non-linear effects of environmental decentralization on renewable energy development under different thresholds of local government competition, a single-threshold regression model with local government competition as the threshold variable was developed. Renewable energy is the dependent variable and environmental decentralization is the independent variable. The model is as follows:

$${\mathrm{RE}}_{\mathrm{it}}=\mathsf{\alpha }+{\mathsf{\beta }}_1{\mathrm{ED}}_{\mathrm{it}}\mathrm{I}\left({\mathrm{LGC}}_{\mathrm{it}}<\mathsf{\phi }\right)+{\mathsf{\beta }}_2{\mathrm{ED}}_{\mathrm{it}}\mathrm{I}\left({\mathrm{LGC}}_{\mathrm{it}}>\mathsf{\phi }\right) + \mathsf{\gamma }{\mathrm{Control}}_{\mathrm{it}}+{\mathsf{\mu }}_{\mathrm{i}}+{\mathsf{\lambda }}_{\mathrm{t}}+{\mathsf{\epsilon }}_{\mathrm{it}},$$

(3)

where I(.) is the indicator function, LGC_it is the threshold variable, φ is the threshold to be estimated, and β₁, β₂ are the impact coefficients of the explanatory variables at various intervals.

3.2. Variable Selection

Renewable energy (RE) is an energy source that can be recycled in nature and reduce the consumption of coal in energy production [58]. It is environmentally friendly [59] and can potentially increase energy sustainability [60,61]. Natural gas, wind, hydro, and geothermal are used for electricity supply as green, low-carbon, recyclable renewable energy sources. Renewable energy production in a region reflects the strengths and weaknesses of the region’s energy structure, and thus the proportion of renewable energy production is used to characterize the level of renewable energy development in a region [62].

Local government competition (LGC) is manifested as the government’s seizing scarce resources such as capital, talent, and technology, among which foreign direct investment is one of the important manifestations of local government competition. Foreign direct investment is an essential tool for local governments to promote economic growth in their jurisdictions, and is a non-negligible factor influencing environmental governance decisions. Thus, the ratio of actual use of foreign investment to GDP is used to measure the degree of local government competition [63].

Environmental decentralization (ED) is a mechanism for dividing environmental management and affairs based on the separation of powers. Changes in the environmental management system are well reflected by variations in the staffing ratio of environmental agencies at each level of government. Consequently, this study uses Ran et al.’s (2020) [64] indication selection method to depict the degree of environmental decentralization using the staffing distribution characteristics of government environmental protection departments at all levels. The specific environmental decentralization metric is formulated as follows:

$${\mathrm{ED}}_{\mathrm{it}}=\left[\frac{{\mathrm{Lep}}_{\mathrm{it}}/{\mathrm{Pop}}_{\mathrm{it}}}{{\mathrm{Nep}}_{\mathrm{t}}/{\mathrm{Pop}}_{\mathrm{t}}}\right]\times \left[1-\left({\mathrm{GDP}}_{\mathrm{it}}/{\mathrm{GDP}}_{\mathrm{t}}\right)\right],$$

(4)

where Lep, Pop, and GDP are, respectively, the number of employees employed by the province’s environmental protection system, the size of the regional population, and the provincial GDP in year t. The environmental decentralization indices are successfully decreased by including the economic scale reduction factor. This study further divides environmental decentralization according to the scope of responsibility for environmental issues into environmental administrative decentralization, or environmental supervisory decentralization. By simply substituting the number of employees in the environmental protection system with the corresponding number of employees in the subdivided indicators [64], Equation (4) can be used to measure the three subdivided indicators.

With reference to pertinent literature [65], the following indicators were chosen for this study’s control of the variables mentioned above: Each province’s population at the end of the year, expressed as population density (Popu), economic growth (GDP), expressed by the province as GDP per capita [66], R&D investment intensity (RD), calculated as the ratio of internal R&D expenditure to GDP for the province, secondary industry output (Second), expressed by the province as the ratio of secondary industry output as a percentage of GDP [67], environmental regulation (Regu), calculated as the provincial investment in industrial pollution control to the provincial industrial value added [68], and urbanization rate (Urban), expressed as a percentage of the total population living in cities in each province [69].

3.3. Variable Description

This study selected provincial panel data of 30 provinces in China from 2000–2021. The data are from the Chinese Statistical Yearbook and Chinese Environmental Statistical Yearbook in previous years, and some missing data were filled in using the interpolation method.

Table 1. Descriptive statistics of the main variables.

Variables	Description	Observations	Mean	SD	Min	Max
RE	Renewable Energy	660	0.242	0.233	0.0001	0.919
ED	Environmental Decentralization	660	0.977	0.356	0.414	2.290
LGC	Local Government Competition	660	0.0272	0.0223	0.0001	0.146
Popu	Population Density	660	437.168	623.228	6.677	3950.794
GDP	Economic Growth	660	38,433.19	30,400.73	2759	183,980
RD	R&D Investment Intensity	660	0.0142	0.0112	0.0015	0.0662
Second	Secondary Industry Output	660	44.77	8.405	15.80	61.50
Regu	Environmental Regulation	660	0.004	0.0036	0.0001	0.0285
Urban	Urbanization Rate	660	52.401	15.601	19.23	89.60

displays the descriptive statistics of the relevant variables in this study.

The mean value of RE is 0.242, the minimum value is close to 0, and the maximum value reaches 0.919, indicating considerable regional variations in renewable energy development. Most regions have a low level of renewable energy development. The minimum value of ED is 0.414, the maximum value is 2.29, and the standard deviation is 0.356, demonstrating regional variations in the degree of environmental decentralization. The standard deviation of GDP is the largest among all variables because each province’s economic development varies significantly. The fact that the values of all variables fall within the normal range supports the accuracy of the data.

4. Empirical Results and Discussion

4.1. Baseline Regression Analysis

The results of the baseline regression in this paper are shown in

Table 2. Results of environmental decentralization affecting renewable energy.

Variables	(1)	(2)	(3)	(4)
ED	−1.481 *** (−5.21)
EAD		−0.235 ** (−2.33)
EMD			0.101 (1.12)
ESD				0.443 *** (3.26)
Popu	1.093 (1.58)	1.696 ** (2.45)	1.819 *** (2.62)	2.482 *** (3.44)
GDP	0.091 (0.25)	−0.435 (−1.21)	−0.524 (−1.42)	−0.278 (−0.77)
RD	0.778 *** (4.00)	0.576 *** (2.82)	0.687 *** (3.46)	0.816 *** (4.09)
Second	−1.539 *** (−3.09)	−0.997 ** (−2.01)	−0.928 * (−1.84)	−0.848 * (−1.71)
Regu	0.08 (1.19)	0.116 * (1.70)	0.109 (1.61)	0.141 ** (2.07)
Urban	−0.115 (−0.21)	−0.769 (−1.45)	−1.129 ** (−2.16)	−1.235 ** (−2.39)
Constants	0.704 (0.13)	1.74 (0.31)	3.416 (0.62)	−1.484 (−0.26)
Time Effects	YES	YES	YES	YES
Regional Effects	YES	YES	YES	YES
R-squared	0.366	0.343	0.339	0.349
Observations	660	660	660	660

Notes: *, **, *** denote significance at the 10%, 5%, and 1% levels, respectively; the values in parentheses denote the T-statistics.

. Environmental decentralization has a large negative impact on renewable energy production, as shown by the estimated coefficient of environmental decentralization, which is negative and above the 1% significance level. The impact of environmental decentralization on renewable energy production in different dimensions is heterogeneous, with the estimated coefficients of environmental administrative decentralization (EAD) significantly negative at the 5% level, environmental monitoring decentralization (EMD) insignificant, and environmental monitoring decentralization (ESD) significantly positive at the 1% level, indicating that environmental administrative decentralization is detrimental to renewable energy development. In contrast, environmental monitoring decentralization helps renewable energy development. The effectiveness of the decentralization of environmental monitoring is due to the information advantage of the local government, while the ineffectiveness of the decentralization of environmental administration is due to the short-sighted behavior of the local government. Environmental administrative decentralization involves formulating relevant environmental protection plans and approving administrative permits. Local governments achieve environmental goals through binding measures, such as regulation and governance, and local governments may relax their pursuit of green performance [70] to pursue high economic growth [71] and not focus on sustainable industry for long-term investments, which hinders the expansion of local renewable energy.

The estimated coefficient of R&D input intensity (RD) is significantly positive, as can be observed by looking at the regression findings for the other control variables, indicating that R&D spending on innovative science and technology effectively fosters the development of renewable energy. The estimated coefficient of secondary industry output value (Second) is significantly negative because with limited resources, the government under the pressure of promotion will give priority to the development of secondary industry that can promote economic growth faster [72], crowding out the space for the growth of renewable energy, which could be detrimental to its sustained development.

4.2. Empirical Analysis of the Moderating Effect

To examine whether local government competition impacts the relationship between environmental decentralization and renewable energy production, the regressions of Model (2) are estimated in this paper. The regression results are shown in

Table 3. Results for investigating the role of local government competition.

Variables	(1)	(2)	(3)	(4)
ED	−4.436 *** (−6.66)	−4.001 *** (−6.00)	−4.408 *** (−6.64)	−4.322 *** (−6.45)
LGC	0.011 (0.20)	0.046 (0.86)	0.01 (0.19)	0.013 (0.25)
ED_LGC	−0.668 *** (−4.09)	−0.694 *** (−4.29)	−0.761 *** (−4.72)	−0.754 *** (−4.65)
Popu		1.536 ** (2.29)	1.13 * (1.70)	1.138 * (1.66)
GDP		−0.785 *** (−2.68)	−0.097 (−0.27)	−0.062 (−0.17)
RD			0.911 *** (4.74)	0.886 *** (4.54)
Second			−1.391 *** (−2.94)	−1.321 *** (−2.69)
Regu				0.06 (0.91)
Urban				−0.235 (−0.44)
Constants	−3.097 *** (−12.30)	−4.165 (−0.84)	1.578 (0.32)	1.991 (0.71)
Time Effect	YES	YES	YES	YES
Regional Effects	YES	YES	YES	YES
R-squared	0.344	0.362	0.388	0.389
Observations	660	660	660	660

Notes: *, **, *** denote significance at the 10%, 5%, and 1% levels, respectively; The values in parentheses denote the T-statistics.

. To test the robustness of the results, control variables are gradually introduced, and the results with and without the inclusion of control variables are compared. Column (1) displays the regression results without control variables, while Column (2) displays the regression results which include the control variables for population density and economic growth. Column (3) adds the R&D input intensity and secondary industry output value control variables to Column (2), and Column (4) shows the regression results with all control variables included.

The results show that the estimated coefficients of the interaction terms of environmental decentralization and local government competition are both significantly negative. Local government competition reinforces the inhibitory effect of environmental decentralization on renewable energy development, i.e., the more intense local government competition is, the stronger the inhibitory effect of environmental decentralization on renewable energy. Due to the influence of environmental decentralization and “promotion tournament”, local governments’ behavioral preferences are easily motivated by economic and interest agents [73,74]. Energy and environmental policies in China’s decentralized system face more significant implementation challenges due to the nature of local environmental protection departments, which are jointly led by higher environmental protection departments and local governments. The regression results show this competitive approach is not conducive to the government’s positive role in environmental decentralization and even brings about the opposite result.

4.3. Empirical Analysis of Robustness Test

This study used three methods for robustness testing. First, the study used alternative measures to obtain the dependent variable. The initial dependent variable, renewable energy production, is replaced by the percentage of renewable energy production, and then the new dependent variable is introduced into Model (2) for estimation. Column (1) of

Table 4. Empirical results of robustness tests.

Variables	(1) Alternative Measures	(2) Lag One Period	(3) Lag Two Period	(4) Instrumental Variable
ED	−1.689 ** (−3.58)	−3.876 *** (−5.82)	−4.106 *** (−5.89)	−4.330 *** (−5.27)
LGC	−0.049 (−1.29)	−0.012 (−0.23)	−0.038 (−0.67)	0.008 (0.18)
ED_LGC	−0.328 ** (−2.24)	−0.679 *** (−4.19)	−0.754 *** (−4.42)	−0.817 *** (−5.00)
Popu	−0.762 (−1.58)	1.540 ** (2.19)	1.785 ** (2.29)	1.243 (1.51)
GDP	0.036 (0.14)	0.108 (0.30)	0.484 (1.25)	−0.283 (−0.83)
RD	0.733 *** (5.34)	0.724 *** (3.85)	0.816 *** (4.32)	0.702 *** (4.06)
Second	−0.882 ** (−2.55)	−1.594 *** (−3.33)	−1.357 *** (−2.80)	−1.119 ** (−2.20)
Regu	0.156 *** (3.35)	0.082 (1.27)	0.067 (0.98)	0.045 (0.73)
Urban	0.55 (1.47)	0.616 (1.20)	0.068 (0.13)	−0.164 (−0.23)
Constants	12.629 *** (3.36)	−3.963 (−0.72)	−7.788 (−1.25)	−3.238 (−0.51)
Time Effect	YES	YES	YES	YES
Regional Effects	YES	YES	YES	YES
Cragg-Donald Wald F Statistics				602.583
R-squared	0.752	0.383	0.397	0.818
Observations	660	630	600	630

Notes: **, *** denote significance at the 5%, and 1% levels, respectively; the values in parentheses denote the T-statistics.

displays the estimation results. Compared with the previous regression estimation results, although the estimated coefficients of the core variables are different, the direction of influence and significance level are almost the same, indicating that this paper’s estimation results are still robust after replacing the dependent variable.

Second, this study selected the lag period of the explanatory variable for regression. Environmental decentralization, local government competition, and their interaction terms were estimated by substituting into the model (2) after lagging one and two periods, respectively, with the control variables. The coefficient estimation results are consistent with the results of the above analysis.

Third, this study seeks instrumental variables for regression analysis. The results were tested using the instrumental variables approach, which mitigates the estimation bias caused by the endogeneity problem. Using the lagged period instrumental variables strategy, the explanatory variables are lagged by one period as the instrumental variables for the current period values, and the model subjected to second-order least squares regression. The analysis reveals the estimated coefficients of the interaction terms of local government competition and environmental decentralization are significantly negative at the 1% level, and the original hypothesis still holds. Combined with the above analysis, the empirical findings of Hypotheses 1 and 2 are robust.

4.4. Empirical Analysis of Regional Heterogeneity

Local energy development cannot be attributed solely to government conduct, just as economic growth is not the only element influencing local government decisions. Both the natural environment and energy demand have an impact on local government behavior [22]. The level of resource allocation for energy development varies across regions in China because of the stark differences in economic power and environmental conditions. To determine whether the empirical findings of Model (2) exhibit any regional heterogeneity, China’s economic zones were divided according to the geographical location of each province. This study divided China into three major regions: East, Central, and West. The influence of environmental decentralization on renewable energy in each region is then thoroughly examined.

According to

Table 5. Empirical results of regional heterogeneity.

Variables	(1) Eastern	(2) Central	(3) West
ED	−11.869 *** (−6.45)	0.002 (0.00)	−2.238 *** (−6.21)
LGC	0.526 ** (2.33)	0.096 (0.95)	−0.009 (−0.32)
ED_LGC	−1.964 *** (−3.49)	−0.248 (−1.45)	−0.381 *** (−4.82)
Popu	−3.952 ** (−2.22)	2.442 ** (2.25)	−0.739 (−1.27)
GDP	2.074 ** (2.38)	−0.209 (−0.54)	0.71 *** (3.11)
RD	0.419 (0.71)	−0.558 *** (−2.85)	1.05 *** (8.99)
Second	−1.591 (−1.30)	−1.534 *** (−4.00)	0.329 (0.86)
Regu	0.101 (0.69)	0.095 (1.44)	0.053 (1.17)
Urban	1.902 (1.54)	−0.042 (−0.06)	−0.687 ** (−1.99)
Constants	2.914 (0.18)	−10.198 * (−1.90)	2.33 (0.60)
Time Effect	YES	YES	YES
Regional Effects	YES	YES	YES
R-squared	0.564	0.629	0.599
Observations	242	176	242

Notes: *, **, *** denote significance at the 10%, 5%, and 1% levels, respectively; the values in parentheses denote the T-statistics.

, the interaction term coefficient between environmental decentralization and local government competition is significantly negative at the 1% level in the eastern and western regions. The estimated coefficient is much smaller in the eastern region than in the western region, demonstrating that the eastern region has a much greater inhibitory effect of environmental decentralization on renewable energy than the western region, which may be caused by intergovernmental fiscal imbalance [10]. The western region’s economic strength is restricted compared to the eastern region, and local government has relatively less financial investment in large infrastructure projects, hence the degree of regional development is much lower than that of the eastern region.

In addition, the degree of decentralization varies in its implementation in different regions. Although the Chinese decentralization system is detrimental to the role of renewable energy, some differences in the role of various levels of decentralization on energy transformation and upgrading can be observed. The interaction between environmental decentralization and renewable energy is significantly negative in eastern and western regions. When the degree of local government competition deepens, it is difficult for the eastern and western governments to promote economic development and ecological protection in concert with the GDP tournament, resulting in a more severe impediment to renewable energy development. It is worth noting that the interaction term coefficient is not significant in the central region, which may result from the dynamic balance between central and local environmental management power.

4.5. Empirical Analysis of Threshold Effect

The impact of environmental decentralization on the production of renewable energy depends on local government competition, according to the findings of the empirical analysis. Depending on the different levels of competition among local governments, the impact of environmental decentralization on renewable energy production varies, and local government competition may have a “threshold effect” [75]. The impact of environmental decentralization on renewable energy production under various levels of local government competition was further investigated using a panel threshold model.

Before applying the panel threshold model, the model needs to be tested and the number of thresholds determined. The test results indicated a single-threshold effect of environmental decentralization on renewable energy production [76,77] and yielded a threshold estimate of −3.046 with a 95% confidence interval of [−3.492, −2.877].

Table 6. Empirical results of the panel threshold model.

Variables	(1) ED	(2) EAD	(3) EMD	(4) ESD
L1.RE	0.153 *** (16.94)	0.182 *** (12.59)	0.222 *** (36.93)	0.173 *** (25.51)
Below thres	−3.836 *** (−5.33)	−0.593 *** (−10.32)	−0.003 (−0.04)	0.911 *** (6.77)
Above thres	−4.220 *** (−5.58)	−0.131 * (−1.78)	−0.184 (−1.37)	0.459 *** (3.85)
Control variables	YES	YES	YES	YES
Constants	14.736 ** (2.45)	−13.590 *** (−11.58)	−3.350 *** (−2.97)	−14.755 *** (−12.15)
Threshold	−3.046	−3.993	−3.000	−2.997
Observations	630	630	630	630

Notes: *, **, *** denote significance at the 10%, 5%, and 1% levels, respectively; the values in parentheses denote the T-statistics.

displays the findings of the threshold model parameter estimate. The effect of environmental decentralization on the growth of renewable energy has a non-linear feature because of the influence of local government competition. According to the obtained threshold values, the interval variable environmental decentralization (ED) can be divided into two intervals: interval I (LGC ≤ −3.046) and interval II (LGC > −3.046). The set model is estimated to the division of these two intervals. The effect of environmental decentralization on renewable energy production is significantly negative in intervals I and II. However, the coefficient of the effect of environmental decentralization in interval II is smaller than that in interval I, indicating that the inhibitory effect of environmental decentralization on renewable energy production strengthens with the increase of local government competition, which generally agrees with the results of the empirical analysis. In addition, the threshold effects of environmental administrative decentralization, environmental monitoring decentralization, and environmental supervisory decentralization on renewable energy are tested. The estimated coefficients of intervals I and II of environmental administrative decentralization are significantly negative, indicating that the hindrance of environmental administrative decentralization on the development of renewable energy increases with an increase in local government competition. The estimated coefficients of environmental monitoring decentralization intervals I and II are significantly positive, indicating that the positive effect of environmental monitoring decentralization on renewable energy development is strengthened by local government competition.

5. Conclusions and Policy Implications

With the starting point of exploring the institutional factors affecting renewable energy development, this study empirically tested the mechanism of environmental decentralization on renewable energy in the context of local government competition through a two-way fixed effects model, a panel threshold model, and an ADRL model, based on provincial panel data from 2000–2021 in China.

After a series of empirical tests, the following conclusions are drawn:

• Environmental decentralization significantly hinders renewable energy development in the region, and local governments neglect the role of renewable energy in long-term environmental governance because of short-sightedness.
• The impact factor of environmental decentralization on renewable energy is −1.481, which is not conducive to optimizing and upgrading energy structure. The higher the level of environmental decentralization, the less conducive to the sustainable development of renewable energy. However, although decentralization of environmental administrative power hinders the development of renewable energy, the decentralization of environmental monitoring power promotes renewable energy development, with impact coefficients of −0.235 and 0.443, respectively.
• Local government competition as a moderating variable influences the relationship between environmental decentralization and renewable energy. Intergovernmental competition can distort the effectiveness of energy policy implementation and increase the obstacles to energy transformation caused by environmental decentralization.
• The environmental decentralization and local government competition for renewable energy has regional heterogeneity. The estimated structure is significantly negative at the 1% level for eastern and western regions, indicating that environmental decentralization significantly inhibits renewable energy development. In contrast, the estimation of the central region is not important.
• With competition between local governments, the inhibitory effect of environmental decentralization on renewable energy development is becoming increasingly significant. Different forms of environmental decentralization have varied effects.

The following policy recommendations are made based on the findings of this paper. Although local governments may have information advantages in environmental governance, they choose to reduce public policies in renewable energy because of regional competition. Hence, central government should further improve local governments’ multi-dimensional assessment and evaluation mechanism and coordinate the central and local governments’ authority and duty in matters of the environment; implement the primary responsibility of local governments for environmental management; incorporate ecological efficiency indicators such as carbon emissions and non-renewable energy use into the performance appraisal system; increase the weight of ecological and environmental benefits in the performance appraisal; change local GDP-oriented development concepts; and enhance local motivation to develop renewable energy. Moreover, local environmental administrative powers should be restrained appropriately and public opinion monitoring mechanisms should be implemented. The public should also be encouraged to monitor government actions to prevent the adverse impact of power abuse on the renewable energy industry. The monitoring capacity of environmental protection departments should be strengthened and environmental monitoring capabilities improved continuously.

Local governments should be encouraged to engage in healthy competition and implement different environmental decentralization strategies according to local conditions. Central government should reclaim the excessive environmental management powers held by regional government in the eastern area where the economy is more developed, and lessen the negative effects of environmental decentralization [78]. The central region should balance economic expansion and environmental protection, adopt an intensive economic development model, take advantage of local governments’ information, and accelerate changes in energy systems. With its heavy economic growth targets, the western region should hold the environmental bottom line while maintaining its existing environmental powers, increasing infrastructure development, and vigorously developing its economy.

Central government should increase transfer payments and allocate funds or subsidies to local governments to direct them toward renewable energy industries; reduce the supply of non-renewable energy; limit non-renewable energy consumption in energy-intensive industries; develop preferential policies to incentivize enterprises to participate in clean energy technology research and development; improve energy innovation performance; and promote the marketization of renewable energy. In addition, the government should strengthen the promotion of low-carbon policies, raise public awareness of energy conservation and emission reduction, and unite efforts to promote the high-quality development of renewable energy [79].

In conclusion, the findings of this paper have important implications for environmental decentralization for renewable energy development in terms of economic policy implications and sustainability applications. By involving local governments in environmental policymaking and promoting the application of renewable energy, economic growth can be improved while achieving sustainability goals. This approach to environmental decentralization allows full play to the role of local governments, improves policy flexibility and relevance, and creates a favorable environment for the development of the renewable energy industry.

This study has some restrictions that point to potential future research. The relationship between environmental decentralization and renewable energy at the provincial level has been examined in this paper. However, the degree of decentralization and the environmental and economic conditions vary significantly between different cities in the same province, and the use of provincial panel data may have a small sample bias, resulting in less accurate estimation results. Thus, future analysis could be conducted at a city level to improve the explanatory power of the study findings. In addition, under environmental decentralization, jurisdictions may impact neighboring areas when carrying out energy development; hence, spatial spillover of environmental decentralization could be considered in future studies.