Open the black box of energy conservation: Carbon reduction policies and energy efficiency of microcosmic firms in China

Energy efficiency improvement is key to achieving energy conservation. Based on China's microdata from 2000 to 2010, this study systematically analyzes the impact of carbon reduction policies on energy efficiency through propensity score matching and the difference-in-differences method. The benchmark estimation shows that carbon reduction policy can increase energy efficiency of firms by approximately 50%. A heterogeneity analysis shows that the policy has made energy efficiency of firms reach and exceed the expected target increase by 23% and 53%, respectively. Carbon reduction policies have an increasingly prominent effect in the middle and late stages. Reducing coal input and increasing R&D innovation are identified as transmission paths through which carbon reduction policies promote energy efficiency. In addition, carbon reduction policies can increase profitability of firms by approximately 1.8% and decrease probability of firms' withdrawal by approximately 6.1%. This study opens the black box of energy conservation from a micro perspective and provides a scientific basis for energy transformation.