A Study On The Opportunity Cost Of Environmental Regulation On China’s Industrial Sectors

With the high-speed development of our country’s economy, people’s material conditions are improving day by day. However, along with the high economic growth, pollution is more and more serious, and the environment is gradually worsening. Industry, which is the main power of economic development in our country, drives the growth of the whole economy. But at the same time, it also consumes the most of energy, and causes serious pollution. Therefore, on this conditon, we must restrain the behavior of the industrial sectors through the government’s environmental regulation policy. But regulation will inevitably increase the production cost of industrial sectors, and reduce their production capacity in the short term. So the traditional economic view is that environmental regulation will reduce the market competitiveness of the manufacturers, and it has negative attitudes toward the implementation of regulation policy. On the contrary, Potter thinks that although strengthening environmental regulation will reduce the manufacturers’ production capacity in the short term, but it will force companies to carry out technological innovation and strengthen management in the long run. So finally the production efficiency of the manufacturers will be improved, and the market competitiveness of the manufacturers will be enhanced. The above views of Potter is known as Potter hypothesis—the improvement of environmental quality and the improvement of the manufacturers’productivity and competitiveness can achieve a win-win situation.This article will research on the industrial environmental regulation problem with the non-parametric linear programming method. The main research strategy is that first comparing the different performance of the industrial sectors under two conditions—environmental regulation and no environmental regulation, and then understanding the impact of environmental regulation on China’s industrial sectors. This article, which selects China’s37industrial sectors as the research object and collects the corresponding input and output data of the37industrial sectors from2001to2008, uses the directional distance function method to calculate the annual environmental technical efficiency and technical inefficiency of each industrial sector, and then calculate the opportunity cost of each industrial sector under environmental regulation according to the technology inefficiency. This paper respectively analyzes the environmental technology efficiency and the opportunity cost of each industrial sector, and then discusses by combining the Porter hypothesis and Environmental Kuznets Curve. The research shows that:(1)From the static point of view, the industrial environmental coordination is very different among the industrial sectors, and it presents a uncoordinated trend as a whole.(2)From the dynamic point of view, the environmental technical efficiency of China’s overall industry presents a trend of decreasing year by year, and the downward trend is gradually slow down.(3)In the process of industrial development, there are little change of the environmental technical efficiency in most of the industrial sectors. Only a few industrial sectors show great change.(4)Under two conditions of environmental regulation and no environmental regulation, China’s industrial technical efficiency both present an increasing trend.(5)The opportunity costs of environmental regulation vary widely between different industrial sectors.(6)China is still at the rising stage of the Environmental Kuznets Curve.