Description:
Previous literature on the effectiveness of pollution charges in achieving energy conservation has yielded inconsistent conclusions. By employing a quasi-natural experiment based on China's Environmental Protection Tax Reform (EPT), we analyze this question. In 2018, China implements Environmental Protection Tax, which change the previous pollution fee to tax, increase the pollution discharge rate in some regions. By using the Difference-in-Differences (DID) model, and a comprehensive firm-level database, we find that the implementation of the environmental tax has significantly reduced enterprises’ fossil energy consumption and increased fossil energy efficiency, especially for energy-intensive industries and private enterprises. Even considering the substitutability of fossil energy and electricity, the effect is significant for total energy. Economical estimation shows that the reform increased pollution costs, and compels enterprises to update equipment, thereby increasing output and energy efficiency, and achieving substantial energy conservation and emission reduction