Effects of environmental regulation on capacity utilization: Evidence from energy enterprises in China

Overcapacity seriously hinders the sustainable development of China's economy. However, although there is widespread concern about policy regarding this issue, the discussion of the causes of overcapacity and of the methods used for its management in academic research remains theoretical, and evidence from empirical data is lacking. Therefore, using data on energy enterprises, we measure enterprise-level capacity utilization with the improved production function method and empirically study the effects of environmental regulation on energy enterprises’ capacity utilization using a Tobit regression model. We conclude that environmental regulation is conducive to improving the utilization ratio of energy enterprises and managing overcapacity in the energy sector. Moreover, the effect of environmental regulation is influenced by the regional institutional environment. With the increases in decentralization and bureaucratic corruption, the influence of environmental regulation on the overcapacity of energy enterprises has weakened. In addition, the medium effect model reveals that environmental regulation can be used to manage overcapacity because it increases production costs and stimulates R&D innovation, and the path of stimulating innovation is dominant in improving the capacity utilization of energy enterprises during the sample period. Finally, environmental regulation can reduce the gap between the enterprises' capacity utilization ratios in the energy industry, making the distribution of the capacity utilization rate of energy enterprises uniform and improving the efficiency of resource allocation in the energy industry.