Towards carbon neutrality: the effects of environmental regulatory distance on corporate carbon emissions

This paper is founded upon the perspective of environmental regulation and government-enterprise collusion. It uses 455063 Chinese industrial firm-year observations from 1999 to 2013 to explore the effects of the Environmental Protection Bureau (EPB) regulatory distance on firms’ carbon emissions. To address endogeneity, we take the historical county-level EPB density in 1989 as an instrument variable. Our results show that greater distance correlates with higher carbon intensity (0.023, p < 0.01), which verified the environmental regulatory effect of geographical distance. This effect is achieved by lowering regulatory enforcement costs, and enhancing regulatory deterrence, which influence both their short-run (decrease output and investment) and long-run (green innovation and energy structure transformation) behavior; notably, this effect is stronger among municipal-level EPBs, eastern region firms, and small scale firms. Overall, we introduce geographical distance, a non-institutional factor, into the research area of carbon emissions, enrich the ‘distance decay effect’ hypothesis in geo-economics and the ‘Porter Hypothesis’ in environmental economics.