1. Introduction
Energy has long been one of the most important issues in economic and social development. It is related to ecological environment development as well as national economic security and national strategic security. In the past few decades, economic growth has been highly dependent on energy and resource input in China. Although rapid economic growth has brought economic prosperity, it has also caused a series of problems such as the shortage of energy and resources and the ecological degradation of the environment [
1]. Rapid economic growth is often accompanied by a large amount of energy consumption. On the one hand, with the declining energy reserves, energy security will threaten sustainable development; on the other hand, the greenhouse effect and air pollution caused by the use of fossil fuels are becoming increasingly serious. Thus, reducing carbon emissions and achieving carbon neutrality require improving energy efficiency as an important national strategy.
China overtook the U.S. as the world’s largest energy consumer in 2009, according to the International Energy Agency. Since the reform and opening-up policies, although energy efficiency has improved, compared with other countries, energy consumption per unit GDP is still high in China, about twice the world average, three times that of America, and seven times that of Japan. The Central Government of China made it clear that the country should accelerate green and low-carbon development, continuously improve the quality of the environment, enhance the quality and stability of the ecosystem, and comprehensively improve the efficiency of resource utilization. The white paper titled “China’s Energy Development in the New Era 2020” pointed out that energy efficiency in key areas should be improved. In 2021, the State Council of China issued the Action Plan for Achieving Carbon Peak before 2030, which put forward action requirements such as promoting energy conservation and energy efficiency of key energy-using equipment and accelerating the improvement of energy efficiency of buildings, and indicated that improving energy efficiency shall be an important task in the 14th and 15th Five-Year Plan periods.
Meanwhile, China’s carbon emissions from fossil fuels are likely to continue rising for some time to come. Carbon emissions from energy use pose a severe threat to air quality and the environment. According to the BP Statistical Review of World Energy 2021, energy consumption in China increased by 2.1% in 2020, accounting for 26.1% of the total global energy consumption. The carbon dioxide () emissions increased by 0.6% in the same year, accounting for 26.1% of the total global emissions. The Chinese government has decided to achieve an emissions peak around 2030 or earlier and reduce carbon intensity ( emissions per unit of gross domestic product [GDP]) by 40% to 45% in 2020 and 60% to 65% in 2030, compared with 2005.
In the context of carbon peaking and carbon neutrality goals, enterprises should take actions to abate pollution and improve energy efficiency to satisfy the requirements of national strategy, especially for those in energy-intensive industries. The energy-intensive industries are those in which the consumption of energy occupies a relatively large proportion of the inputs during the production process; they are also called ‘high energy-consuming industries’ [
2,
3,
4,
5]. Six industries are designated as energy-intensive by the Chinese government. Among these, five are manufacturing industries: (The sixth energy-intensive industry is the production and supply of electric and heat power, which does not belong to the manufacturing industry and thus is excluded from the analysis in this study) (1) Processing of petroleum, coking, and nuclear fuel manufacturing; (2) raw chemical materials and chemical products manufacturing; (3) nonmetallic mineral products manufacturing; (4) smelting and pressing of ferrous metals manufacturing; and (5) smelting and pressing of nonferrous metals manufacturing. The National Bureau of Statistics of China shows that the above five energy-intensive manufacturing industries consumed 42.9% of China’s total energy consumption in 2019. Further, they are primary fossil energy users. In 2019, the coal, fuel oil, and natural gas consumed by them accounted for 36.7%, 54.8%, and 31.2% (respectively) of the country’s total consumption of the corresponding fossil energies (calculated by using information from
http://www.stats.gov.cn/sj/, accessed on 17 January 2023). These energy-intensive manufacturing industries also generate massive air pollutants. Two industries—nonmetallic mineral products manufacturing and the smelting and pressing of ferrous metals manufacturing—generated 36.5% of sulfur dioxide (
) and 49.6% of oxides of nitrogen (
) emissions in 2020 [
6]. Nationally, industrial coal burning contributes 10 μg/
(17%) of fine particles (
) on average [
7]. Energy efficiency in energy-intensive manufacturing industries is strongly related to commercial and energy security, as well as to the environment and climate change [
8]. Hence, an in-depth discussion on improving the energy efficiency of energy-intensive manufacturing industries is instructive for future sustainable development in China.
Improving energy efficiency has become one of the key ways to achieve green development in the process of transforming China’s economy from high-speed growth to high-quality development [
9], which has also become a highly concerning topic in academic circles. A long strand of literature has demonstrated the
proposition that lowering energy efficiency causes increases in air pollution (e.g., [
10,
11,
12,
13,
14,
15,
16,
17]). However, its
converse proposition—that a decrease in air pollution raises enterprise-level energy efficiency—has not been explored, either formally or directly. This study, therefore, attempts to explore the causal effect of air pollution on enterprise-level energy efficiency in the energy-intensive manufacturing industries of China. From a microeconomic perspective, the findings attempt to provide an economic rationale for those enterprises in energy-intensive manufacturing industries to motivate themselves to reduce air pollution, promote energy efficiency, and reduce costs.
The main obstacle to exploring the causal relationship between air pollution and enterprise-level energy efficiency is the potential endogenous problem caused by the apparent reverse causality. In addition, omitted variables can exacerbate the problem. To solve it, the study employs the annual number of thermal inversion days in the county as the instrumental variable (IV) (see the detail in
Section 3.2). In general, the air temperature drops with increasing altitude. However, under certain weather conditions, the structure of the atmosphere above the ground shows an abnormal increase in temperature with altitude. It is called a thermal inversion. Thermal inversions are deviations caused by exogenous meteorological factors, which can trap air pollutants near the ground such as
and degrade air quality. There are plenty of studies about the impacts of air pollution on economic and social variables such as infant mortality, migration, productivity, and health. These studies have demonstrated that employing thermal inversions as an IV in two-stage least squares (2SLS) estimates is reliable for obtaining unbiased effects [
18,
19,
20,
21].
Relying on a valid IV strategy, the baseline results of this study demonstrate that air pollution decreases enterprise-level energy efficiency. This study finds further heterogeneous impacts of air pollution on enterprise energy efficiency. The effects vary with enterprise ownership, enterprise age, enterprise location, and regional energy resource endowment. The study also discusses the potential mechanisms that may explain why air pollution has an adverse effect on enterprise energy efficiency. It is found that air pollution can reduce enterprise productivity (both total factor productivity [TFP] and labor productivity), increase energy consumption, and lower enterprise export, thereby decreasing enterprise energy efficiency.
This study makes several contributions. First, to the best knowledge of the authors, this is the first attempt to explore the causal impacts of air pollution on enterprise-level energy efficiency. Previous studies discuss the influencing factors of energy efficiency, for example, energy-saving technology investment, energy management practice [
22], energy policy [
23,
24,
25], improvements in technology [
15,
26,
27,
28], population density [
29,
30,
31], institutional quality [
28,
32], and trade openness and urbanization [
31,
33,
34]. The findings of this study enrich the literature on the knowledge of energy efficiency, especially from a microeconomic perspective.
Second, the findings on specific energy-intensive industries can provide more elaborate, practice-based implications for policymakers. Recently, energy consumption, carbon emissions, and energy efficiency in Chinese energy-intensive industries have attracted much attention from researchers (e.g., [
2,
3,
35,
36]). According to the existing literature, improving energy efficiency can reduce air pollution. Our conclusions demonstrate that reducing air pollution could increase enterprise-level energy efficiency, thus reducing costs and improving firm-level performance. Reducing air pollution is not a burden, but it is good for enterprises themselves instead. Our findings provide an economic rationale for enterprises to motivate themselves to reduce air pollution. Thus, a virtuous circle could be generated if enterprises adopted pollution-reducing methods, especially in energy-intensive industries that are the primary users of fossil energy, as already noted.
Finally, this study on China is essential in and of itself. The government of China has established particular energy consumption reduction and energy intensity reduction goals for energy-intensive manufacturing industries. Specifically, the 13th Five-Year Plan has required that the energy consumption in the ferrous metals sector decline by at least 10% and the energy intensity in both nonferrous metals and petrochemical industries reduce by 18% [
3]. Improving energy efficiency will be vital for achieving the above goals and benefiting sustainable development. The findings indicate that reducing air pollution itself could play a role in achieving the goal. For governments, it logically follows that, in order to reduce air pollution, it requires them to shrink coal and other fossil energy consumption and become climate neutral.
The remainder of the paper is organized as follows:
Section 2 discusses the previous studies on enterprise-level energy efficiency and air pollution.
Section 3 presents the econometric model, data sources, variables, and summary statistics. The empirical results are presented in
Section 4.
Section 5 is a discussion of the findings. The final section concludes the study.
5. Discussion
The problem of energy utilization has become the bottleneck of China’s high-quality economic development. Due to the scarcity and high emission of fossil energy, scholars have gradually realized the importance of energy conservation, emission reduction, and energy efficiency improvement. Therefore, related research on energy efficiency has rapidly developed, mostly from a macroeconomic perspective. The vast majority of studies agree that the improvement of energy efficiency can, directly and indirectly, promote economic growth [
80,
81]. Whether economic growth has an impact on energy efficiency or not, most studies believe that economic growth does not necessarily affect energy efficiency and needs to be a concern based on the development stage [
82,
83]. Meanwhile, the fact that industrial structure adjustment is beneficial to the improvement of energy efficiency has been proven by many previous studies. Zhang and Pu [
84] agree that the goals of industrial structure upgrading and energy efficiency improvement are strategically consistent and feasible. Lv and Chen [
85] believe that the evolution of industrial structure has a significant impact on energy efficiency, and the improvement of energy efficiency mainly comes from the contribution of industrial structure upgrading. Li and Cheng [
86] argue that the overall level of energy efficiency in China is still very low, which is mainly determined by the energy-intensive manufacturing industrial structure and its production technology structure. However, research on energy efficiency is still scarce using enterprise-level data [
37,
87,
88,
89]. Different from previous studies, this paper explores the causal impact of air pollution on the energy-level (micro-level) efficiency of energy-intensive manufacturing enterprises. Further, we analyze the heterogeneous effects and influencing mechanisms. Our findings may further enrich the understanding of energy efficiency improvement from a micro-perspective and thus complement the literature on the effect of air pollution on energy utilization and economic growth.
Additionally, most previous studies believe that the improvement in energy efficiency will reduce environmental pollution. Li et al. [
90] suppose that there is a long-term equilibrium relationship between total factor energy efficiency and economic losses from environmental pollution in China, and the former has a more obvious effect on the latter, which means that the improvement of total factor energy efficiency plays an important role in reducing the environmental pollution. Energy efficiency is found to be the main driving factor for the decrease in carbon emissions [
91,
92]. At present, with the carbon peaking and carbon neutrality goals established and new energy regulations stipulated, enterprises have to reduce carbon emissions and promote energy efficiency, especially for those in energy-intensive manufacturing industries. Though this study uses observations of energy-intensive manufacturing enterprises from the period 1997 to 2007, our main result that reducing air population could improve enterprise-level energy efficiency and thus reduce costs still has important policy implications. Since energy-intensive manufacturing industries were and still are the primary fossil energy users, our findings provide an economic rationale for those enterprises in energy-intensive manufacturing industries to motivate themselves to reduce air pollution by employing effective green technology and adopting innovation activities.
This study tries to quantitatively investigate the impact of air pollution on enterprise energy efficiency. The finding enriches our understanding of air pollution’s effect on energy consumption and sustainable development. However, because of data limitations, the data on enterprise electricity consumption are not available. This is one of the reasons that the analysis of the study is limited to energy-intensive manufacturing industries, apart from the importance of these industries, which mainly rely on fossil energy and are crucial in terms of energy conservation and pollution reduction. In the future, if electricity consumption data are available, it would be necessary to extend the investigation to other industries. Furthermore, though the findings using the observations from 1997 to 2007 still have important implications, we will update when the latest data are available and try different measurements of energy efficiency apart from the one calculated by Equation (4) [
93].
6. Conclusions and Policy Implications
The findings show that air pollution causes a significant loss in the enterprise-level energy efficiency of energy-intensive manufacturing industries. This indicates that there is a significant potential benefit to increasing energy efficiency through improved air quality. It offers an economic rationale for enterprises to motivate themselves to control pollution and has significant implications for policymaking in China and other developing countries. Governments should attach greater importance to mechanisms that can combat air pollution.
Additionally, the findings of the study shed new light on energy policy formulation. The formulation of energy policy should be adapted to enterprise characteristics. The analyses of the heterogenous effects of the study indicate that, facing severe air pollution issues, governments should provide incentives to those enterprises with greater declines in energy efficiency, such as non-SOEs and mature enterprises, as well as those enterprises in central and eastern provinces, to increase the adoption of technological upgrades.
Meanwhile, because of the divergent economic development and resource endowment, the implementation of energy policies should be tailored to local conditions. For example, to undercut the negative effects of the “resource curse”, in energy-rich regions, governments should adopt more powerful penalties for those enterprises whose pollution levels are higher than those stipulated.
The governments should strengthen overseas trade and integrate into the international market so as to improve the efficiency of resource allocation and energy efficiency. Moreover, the higher the level of opening to the outside world, the higher the degree of technology spillover, and the higher the efficiency of energy utilization.
Finally, enterprises should strengthen the accumulation of human capital, pay attention to the improvement of labor skills, increase investment in research and development (R&D) and innovation, further improve the utilization rate of enterprise energy, and realize the “win-win” of energy conservation, emission reduction, and economic growth.