Capital Matching, Environmental Regulation and Carbon Emission Performance

Under the “dual carbon” goal, local governments in China have strategically focused on enhancing capital utilization efficiency and enforcing environmental regulations to improve carbon emission performance. This dual approach targets the intertwined challenges of economic development and environmental protection. Utilizing data from 266 prefecture-level cities in China from 2007 to 2019, this study systematically investigates the effects of capital matching and environmental regulation on carbon emission performance through the spatial Durbin model and the instrumental variable method. The results indicate that both capital matching and environmental regulation significantly enhance carbon emission performance. Capital matching demonstrates positive spatial spillover effects; whereas environmental regulation exhibits negative spatial spillover effects. Furthermore, there are synergistic effects between capital matching and environmental regulation that jointly enhance carbon emission performance. To address potential biases caused by endogenous environmental regulation, the study uses the proportion of environment-related words in provincial government work reports as an instrumental variable for environmental regulation. Additionally, to capture the heterogeneity in the environmental governance willingness and intensity of prefecture-level municipal governments, the study constructs heterogeneous instrumental variables. These variables are derived by multiplying the proportion of a prefecture-level city’s total industrial output value to the province’s total industrial output value with the proportion of environment-related words in the provincial government work reports. Analyses based on these instrumental variables reveal that endogenous issues in environmental regulation lead to an overestimation of its positive impact on carbon emission performance.