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The cleaner production technology Impact of TCZ

environmental
innovation effect of environmental regulation
policy
regulation policy: evidence
from China 737
Xianyou Pan Received 18 October 2020
Revised 3 April 2021
Shanghai University of Electric Power, Shanghai, China and 28 April 2021
Dalian University of Technology, Dalian, China, and Accepted 30 April 2021

Yang Cao, Xiongfeng Pan and Md. Kamal Uddin

Dalian University of Technology, Dalian, China

Abstract
Purpose – Environmental regulation policy and cleaner production technology innovation are the key links to
achieve sustainable economic development. This paper tests the impact of Two Control Zone (TCZ)
environmental regulation policy on cleaner production technology innovation and explains the heterogeneity
effect between them from the perspective of regional pollution intensity and R&D investment scale.
Design/methodology/approach – This paper takes TCZ policy as an environmental regulation policy and
collects the patent data related to coal desulfurization cleaner production technology innovation in prefecture-
level cities from 1994 to 2002 in China. This paper also tests the relationship between TCZ environmental
regulation policy and cleaner production technology innovation based on difference in difference (DID) model.
Take regional R&D investment scale and pollution intensity as category variables and analyze the
heterogeneity effect of TCZ environmental regulation policy on cleaner production technology innovation
based on difference-in-difference-in-difference (DDD) model.
Findings – TCZ environmental regulation policy effectively promotes China’s cleaner production technology
innovation, but it is more conducive to cleaner production technology innovation in heavy pollution areas. With
the increasing of R&D investment scale, the positive effect of TCZ environmental regulation policy on cleaner
production technology innovation is stronger.
Research limitations/implications – On the basis of this study, the authors should further explore the
regulatory factors of the relationship between TCZ environmental regulation policy and cleaner production
technology innovation and further expand the research object, so as to make the research conclusions more
practical and instructive.
Originality/value – This paper tests the impact of TCZ environmental regulation policy on cleaner
production technology innovation based on the prefecture city level data and DID model, and it handles the
endogenous problem caused by the missing variables and provides the accurate conclusions. Moreover, this
paper examines the heterogeneity effect of TCZ environmental regulation policy on cleaner production
innovation from regional R&D investment scale and pollution intensity two hands and expands the existing
theoretical research.
Keywords Environmental regulation policy, Cleaner production technology innovation, Biased technology
progress, Natural experiment
Paper type Research paper

1. Introduction
For different countries around the world, due to the low level of technology innovation in the
early stage, serious environmental pollution problems have occurred in the process of rapid
industrialization and urbanization. According to the bulletin on the state of China’s ecological
environment 2019 which issued in 2020, the air quality of 82% urban in China has reached the
Management of Environmental
Quality: An International Journal
Vol. 32 No. 4, 2021
pp. 737-751
Funding: This work is supported by the National Social Science Foundation Project (Grant Nos. © Emerald Publishing Limited
1477-7835
17BGL266) DOI 10.1108/MEQ-10-2020-0227
MEQ excellent level, but 18% of cities still have different degrees of environmental pollution
32,4 problems. In order to change the current situation of pollution from the source and get rid of the
old way of pollution before treatment, the fundamental solution of environmental pollution
depends on the cooperation of technology innovation of economic entities. Hence, with the
increasing of challenges in both the resource and environment, it is necessary to study the
factors which affect technology innovation direction, thus achieving the green economic
growth (Khorasanizadeh et al., 2016; Verdolini and Bosetti, 2017; Raghutla and Chittedi, 2021) .
738 Compared to the traditional pollution production technology innovation based on extensive
development mode, the core idea of cleaner production technology innovation is to eliminate
environmental pollution within taking pollution prevention strategies (Ferigotti et al., 2016).
Meanwhile, the solution of environmental pollution problems also depends on the cooperation
of environmental regulation policy (Asano, 2014; Dong et al., 2020; Egbetokun et al., 2019); it
refers to a series of environmental protection laws and plans formulated by the governments
(Jiang et al., 2018). However, influenced by many factors inside and outside of the enterprises,
the adoption of production technology innovation shows significant directionality under the
constraints of environmental regulation policy (Acemoglu, 2002; Haque and Ntim, 2018).
Distinguishing the effect of environmental regulation policy on cleaner production technology
innovation, extracting the key driving factors between them and promoting the coexistence of
environmental regulation policy and cleaner production technology innovation are important
links to realize economic sustainable development around the global (Fortunski, 2008; de Jesus
Lameira et al., 2012; Salvado et al., 2015).
The relationship between environmental regulation policy and cleaner production
technology innovation has been debated for a long period (Fan et al., 2021; Lima et al., 2020),
but have not formed a unified conclusion. Part of the scholars believed that environmental
regulation policy requires enterprises to invest in pollution control and introduces advanced
production equipment, so that squeezing the original funds were used for improving cleaner
production technology innovation (Lin and Xu, 2017). On the contrary, environmental
regulation policy effectively promotes the internalization of environmental governance costs
and then stimulates enterprises’ willingness of cleaner production technology innovation
(Acemoglu et al., 2012). In addition, evolutionary economics pointed out that regions and
enterprises are heterogeneous and hard to follow the same conduct rules, that is, not all
environmental regulation policies are effective for cleaner production technology innovation
(Darnall et al., 2008; Liu et al., 2018). Particularly, influenced by the driver factors of cleaner
production technology innovation, such as environmental governance cost, technology
innovation efficiency, R&D investment and so on (Guo et al., 2017), different individuals show
differentiated cleaner production technology innovation behavior under the constraint of
environmental regulation policy (Johnstone et al., 2017; Luo et al., 2021).
Most of the research studies stayed in the identification of the relationship between
environmental regulation policy and cleaner production technology innovation. Even though
parts studies have recognized the nonlinear relationship between them, but still not fully identify
the regulatory factors. On the one hand, faced with environmental regulation policy constraints,
the increasing of pollution control costs crowd out cleaner production technology innovation
resources. In order to stimulate innovation will, reduce the cost and risk of innovation, the
supporting of local governments is important. On the other hand, influenced by technological
dependence, environmental regulation policy is difficult to carry out clean production
technology innovation effectively if traditional production pollution technology still can
obtain part of economic benefits, that is, the intensity of regional pollution will directly determine
the impact of environmental regulation policy on cleaner production technology innovation.
In order to test the nonlinear relationship between environmental regulation policy and
cleaner production technology innovation, and explore the driving factors of the nonlinear
relationship between them, this paper took the Two Control Zone (TCZ) policy as an
environmental regulation policy and collected the patent data related to coal desulfurization Impact of TCZ
cleaner production technology innovation in prefecture-level cities from 1994 to 2002. And environmental
then, it quantitatively tested the relationship between TCZ environmental regulation policy
and cleaner production technology innovation based on difference in differences (DID) model,
regulation
took the R&D investment scale and the regional pollution intensity as the indicators of policy
category variable and analyzed the heterogeneity impact of TCZ environmental regulation
policy on cleaner production technology innovation. Compared with the existing literature,
the contributions of this paper are mainly reflected in the following three aspects: 739
(1) Due to the actual operator of environmental regulation policy is local government, this
paper used the prefecture city level data to conduct empirical analysis, thus controlling the
important individual nature and eliminating the estimation bias. (2) This paper employed DID
method to examine the impact of TCZ environmental regulation policy on cleaner production
technology innovation; it excludes the factors that affect both TCZ environmental regulation
policy implementation and cleaner production technology innovation, and effectively handles
the endogenous problem. (3) This paper examined the heterogeneity impact of TCZ
environmental regulation policy on cleaner production technology innovation from regional
R&D investment scale and regional pollution intensity two hands, thus providing a new
perspective to explain the formation mechanism of the nonlinear relationship between TCZ
environmental regulation policy and cleaner production technology innovation.
The rest of this paper is organized as follows: section 2 introduces policy background and
develops theoretical hypotheses; Section 3 gives an overview of model setting and data
description; Section 4 presents empirical research and in section 5 and section 6, conclusions
and implication are discussed. Moreover, this part analyzes the limitations and further study
direction.

2. Policy background and theoretical hypotheses

2.1 Policy background
Constrained by extensive economic development pattern and production technology
innovation level, the degree of acid rain and sulfur dioxide pollution in China are getting
deeper. In order to cope with environmental problem mentioned above, the local governments
promulgated the People’s Republic of China Air Pollution Prevention and Control Law in 1987.
This law aims at regulating the emission of pollutant gases from the legal level. However, it
provides general guidelines for pollution controlling, but practical measures for local
governments. Hence, the Standing Committee of the National People’s Congress revised this
law and proposed the plan of acid rain and sulfur dioxide pollution control zone (TCZ) in
August 1998. The so-called TCZ actually refers to areas that need to adopt a series of
environmental regulation measures to control regional acid rain and sulfur dioxide emissions.
The acid rain control area where the average PH of acid rain is less than or equal to 4.5. The
sulfur dioxide control area where the average of sulfur dioxide concentration in the past three
years exceeds the national secondary standard. According to the statistics, TCZ includes 175
cities and regions in 27 provinces across the country (affected by the data samples, the final
research object of this paper mainly includes 92 TCZ and 84 non-TCZ). The total population
accounts for 39% of the national population, and the GDP accounts for 67%. In the second
year after the implementation of TCZ policy, 102 cities have reached the second-class air
sulfur dioxide concentration, and 84.3% of heavily polluting enterprises have achieved the
standard discharge.

2.2 Environmental regulation policy and cleaner production technology innovation

Enterprises around the global develop cleaner production technologies and products that do
not exist yet to eliminate the burden on environment resources and build sustainable
MEQ competencies (Ferigotti et al., 2016). Breakthrough product and process innovation is required
32,4 to eliminate wastes and emissions within and outside the organization boundary (Bhupendra
and Sangle, 2016). As the core of sustainable production mode, application of cleaner
production technology innovation not only improves the enterprise economic efficiency but
also breaks through the pressure of resource and environment (Meadows et al., 2014; Lee et al.,
2014;Guo et al., 2016). However, due to the existence of technical path dependence and
technological externalities, clean production technology innovation is difficult to get enough
740 incentive rely on market’s mechanism purely. As shown in Figure 1. First, due to the influence
of technical path dependence, enterprises have invested in noncleaner production technology
innovation for a long period (Vazquez and Hallack, 2018). In the absence of policy
intervention, enterprises generally do not have enough incentive to invest in cleaner
production technology innovation. Hence, effective environmental regulation policy is helpful
to correct the distortion of market innovation resources allocation, thus increasing the
expected benefits of cleaner production technology innovation (Liu et al., 2018). Second,
affected by technological externalities, enterprises fail to acquire sufficient innovative
intention under free market conditions (Turkcan, 2014). Cleaner production technology
innovation generates mainly social interests rather than private interests. The private sectors
do not have enough incentive to bear the costs in cleaner production technology innovation.
Hence, an effective environmental regulation policy generates pressure on enterprises to
reduce emissions and promotes cleaner production technology innovation.

2.3 Regulation mechanism of regional pollution intensity

Cleaner production technology innovation is more difficult than traditional production
technology innovation and usually accompanied by higher uncertainty (Dehghani, 2014). The
benefit generated by cleaner production technology innovation belongs to the whole society
mainly. As a result, there is a little of incentive for the financial market and private sectors to
invest in cleaner production technology innovation, which make substantial differences in
cleaner production technology innovation among different regions (Bjorn et al., 2012; Liliana
and Gloria, 2013). In addition, environmental regulation policy enhances enterprises’ social
awareness and promotes enterprises to accept the public supervision (Gray and Mendeloff,
2005; Frondel et al., 2007). The increasing of environmental governance costs stimulates
enterprise’s cleaner production technology innovation desire. Compared with the light pollution
areas, the heavy pollution areas keep a backward economic development pattern and a lower
level of resource utilization technology. In order to obtain larger profits and competitive

Pollution Intensity
Hypothesis 1
Controls:
-Geographical location
R&D investment scale -Economic scale
-Industrial structural
Hypothesis 2 -Foreign direct investment
-Financial expenditure
-Time effect
-Fixed effect

Environmental Cleaner Production

Figure 1. Regulation Policy Technology Innovation
Conceptual frame
position, enterprises under the constraints of environmental regulation policy often have Impact of TCZ
stronger willingness to innovate. Therefore, this paper proposes the first hypothesis. environmental
H1. Among different regions with different pollution intensity, the impact of regulation
environmental regulation policy on cleaner production technology innovation is policy
different.

2.4 Regulation mechanism of regional R&D investment scale 741

Increasing R&D investment or strengthening investment in learning and education promote
technology innovation (Zhang and Tang, 2017; Plank and Doblinger, 2018). Influenced by the
externality of technological innovation, the research of Greaker and Hoel (2011) pointed out
that the private intention for cleaner production technology innovation are low when they
cannot obtain all of the innovation benefits and the promise before implementing
environmental regulation policy. Hence, R&D subsidy and environmental regulation
policy play an extraordinary role (Seung, 2004). Acemolgu et al. (2012) asserted that the
optimal environmental regulatory structure should include an environmental policy and a
R&D subsidy policy. Among them, R&D subsidy policy mainly eliminates the externalities
caused by innovative knowledge, and thus stimulating enterprises’ cleaner production
technology innovation. Environmental regulation policy mainly internalizes the
environmental governance externalities and increases the demand of cleaner production
technology innovation. On this basis, this paper argues that R&D is a critical factor for
supporting cleaner production technology innovation under the constraint of environmental
regulation policy. Thus, this paper proposes the second hypothesis:
H2. Among different regions with different R&D investment scales, the impact of
environmental regulation policy on cleaner production technology is different.

3. Methodology and data

3.1 Econometric model
DID method has been widely used in estimating causal relationships since the work by
Ashenfelter and Card (1985). Observations are collects for two groups and two periods. As
shown in Figure 2, the treatment group is exposed to the treatment in one period (t0 to t1), and
the control group do not receives treatment (see Abadie, 2005; Feess and Muehlheusser, 2002;
Balezentis et al., 2019 for a more detailed discussion).
To identify the impact of TCZ environmental regulation policy on cleaner production
technology innovation, this paper builds a DID model. Notably, this paper also examines the
heterogeneity impact of TCZ environmental regulation policy on cleaner production
technology innovation based on difference-in-difference-in-difference (DDD) model from
regional R&D investment scale and pollution intensity two perspectives. The estimation
models of DID and DDD are set as follows (Adan and Fuerst 2015; Sunak and Madlener 2016):
CPTit ¼ β1 TCZi •Postt þ xit þ ai þ δt þ εit (1)

CPTit ¼ β2 TCZi •Postt •Indi þ wTCZi •Postt þ τTCZi •Indi þ μPostt •IndI þ xit þ ai þ δt
þ εit
(2)

CPTit is the amount of cleaner production technology innovation of i prefecture-level city in

year t. TCZi is a dummy variable for the prefecture-level cities targeted by the environmental
regulation policy (TCZ policy): it equals 1 if prefecture-level city i is targeted by TCZ policy
MEQ
32,4
Policy Effect

Trend
742 Di = 1

Trend
Di = 0

Figure 2.
DID method
t0 t1

and 0 otherwise. Postt is a dummy time variable for TCZ policy: it equals 1 after 1998 and
0 otherwise. β1 is the parameter of primary interest in this paper and captures the average
effect of TCZ environmental regulation policy on cleaner production technology innovation.
Indi is a category dummy variable that includes regional R&D investment scale (RD) and
regional pollution intensity (PI). β2 is the parameter of primary interest in DDD model, refers
to the heterogeneity effect of TCZ environmental regulation policy on cleaner production
technology innovation among different regions. ai is the city fixed effect, and δt is the year
fixed effect. εit is the error term.
xit is a set of control variables that represent the prefecture-level city i’s socioeconomic and
demographic characteristics in year t. According to the research of Cai et al. (2016), the control
variables include geographical factors, namely, northern regions (NOR) and coastal regions
(COA), economic scale (GDP), economic structure (INS), the proportion of FDI in GDP (FDI)
and local fiscal expenditure scale (LFE).

3.2 Description of data and variable

3.2.1 Cleaner production technology innovation. TCZ policy aims at controlling sulfur dioxide
emissions and achieving national environmental standards. Thus, the governments speed up
cleaner production technology innovation. Through the screening of patent abstract
information, this paper collects the number of patents related to coal desulfurization cleaner
production technology innovation in China’s prefecture-level cities from 1994 to 2002, as
shown in Figure 3. This sample contains the years before and after the implementation of
TCZ policy in 1998. In addition, this sample avoids the interference of other policy shocks to
the empirical results because of too long lagging years. The data of cleaner production
technology innovation patents are collected from the State Intellectual Property Office.
3.2.2 Control variable. NOR equals 1 if a prefecture-level city is located in the northern area
and 0 otherwise. COA equals 1 if prefecture-level city is located in the coastal area and
0 otherwise. GDP reflects the scale of regional economic development, which is expressed by
the actual GDP. INS reflects the structure of regional economic development and is expressed
by the proportion of heavy industry. FDI reflects regional ability of absorbing foreign capital
and is expressed by the proportion of FDI in GDP. LFE reflects the ability of local
governments to allocate fiscal funds and is expressed by the scale of local fiscal expenditure.
The data are collected from the China Statistical Yearbook, China City Statistics Yearbook and
Wikipedia.
 N
Impact of TCZ
environmental
regulation
policy

743
Patents
1 - 15
16 - 70
71 - 511

Two Control Zone

Non-ICZ
Acid Rain Control Zone Figure 3.
SO2 Control Zone Geographic
0 200 400 800 Miles distribution of TCZ
cities and cleaner
production technology
Source(s): The national Environmental Protection Bureau, “The Proposal of innovation
Designation for Acid Rain Control Areas and SO2 Pollution Control Areas”

3.2.3 Category variable. PI is measured by the total amount of sulfur dioxide emissions per
square kilometer in different regions. Based on the median of PI, the region is divided into
light pollution areas and heavy pollution areas. If regional pollution intensity is greater than
the median, PI is equal to 1 and 0 otherwise. RD is expressed by the R&D expenditures.
Similarly, the sample is divided into two kinds: R&D intensive and non-R&D intensive. If
R&D investment scale is greater than the median, RD is equal to 1 and 0 otherwise. The data
are collected from the China City Statistical Yearbook.

4. Results
4.1 Basic regression result
This subsection examines the impact of TCZ environmental regulation policy on cleaner
production technology innovation based on formula (1). The regression results are listed in
Table 1. The coefficient of TCZ 3 POST in column (1) equals to 0.628 and passes the
significance test at 1% level; thus, the implementation of TCZ environmental regulation
policy significantly improves the regional cleaner production technology innovation in China.
The regression coefficients of TCZ 3 POST is still significant in columns (2) after adding the
control variables, it means that the positive impact of TCZ environmental regulation policy
on cleaner production technology innovation is robust.

4.2 Parallel trend test

DID method strongly rely on the assumption that the treatment and control groups follow the
same trend in the absence of TCZ policy (Meyer, 1995). As shown in Figure 4, cleaner
production technology innovation in TCZ and non-TCZ keeps same trend before the
implementation of TCZ policy. However, the trend of cleaner production technology
innovation in the two different zones is quite different after TCZ policy implementation. In
addition, Table 2 shows the parallel trend test results. The regression coefficients before the
implementation of TCZ environmental regulation policy are not significant, so it can be
MEQ Variables (1) (2)
32,4
TCZ 0.080 (0.36) 0.460 (0.29)
POST 0.336 (1.49) 1.104*** (3.75)
TCZ 3 POST **
0.628 (2.13) 0.628** (2.54)
Control variables N Y
Time effect N Y
744 Fixed effect N Y
Observations 1,584 1,584
2
R 0.015 0.025
Note(s): Numbers in parentheses are the concomitant probability of the regression coefficients; *, ** and ***
Table 1. represent 10%, 5% and 1% of the significance level. Y represents adding the corresponding control variable in
Results of the basic the regression equation and N otherwise. If no special instructions are provided, the meaning of number
regression (symbols) is consistent with this table

TCZ Non-TCZ

500

400

300

200
Figure 4.
Tendency of cleaner
production technology 100
in TCZ and non-TCZ
from 1994 to 2002 0
1994 1995 1996 1997 1998 1999 2000 2001 2002

considered that the treatment group and control group have a parallel trend. At the same
time, except for the variable year1999 , the regression coefficients are significant after the
implementation of TCZ environmental regulation policy, so it can be considered that the
implementation of TCZ environmental regulation policy has an impact on cleaner production
technology innovation. In particular, the regression coefficient of year1999 is not significant,
which can explain the lag effect of TCZ environmental regulation policy implementation on
cleaner production technology innovation.

4.3 Heterogeneity effect

To further explore the impact of TCZ environmental regulation policy on cleaner production
technology innovation, this subsection examines the regional heterogeneity effect from
regional pollution intensity and R&D investment scale two perspectives. The results are
listed in Table 3. From the perspective of regional pollution intensity, the regression
coefficient of TCZ 3 POST 3 PI is significant at 5% statistical level. It means that in the
heavy pollution areas, the TCZ environmental regulation policy has a positive impact on
cleaner production technology innovation, but the influence on cleaner production
technology innovation is insignificant in the areas with light pollution. From the
perspective of regional R&D investment scale, the regression coefficient of TCZ 3 Post 3
R&D investment scale is significant at 5% statistical level. That is, compared to the non-R&D
intensive areas, TCZ environmental regulation policy has a positive impact on cleaner
Variable (1) (2)
Impact of TCZ
environmental
year1995 0.190 (0.792) 0.285 (0.38) regulation
year1996 0.087 (0.10) 1.003 (1.10)
year1997 0.191 (0.708) 0.144 (0.28) policy
year1999 8.17e-16 (1.000) 0.047 (0.09)
year2000 0.713* (1.44) 0.534 (1.07)
year2001 1.943*** (3.75) 1.887*** (3.65) 745
year2002 1.929*** (3.66) 1.852*** (3.51)
Control variables N Y
Time effect N Y
Fixed effect N Y Table 2.
R2 0.035 0.047 The result of parallel
Note(s): N 5 None, Y 5 Yes trend test

(1) (2) (3) (4)

TCZ 3 Post 0.187 (0.86) 0.075 (0.22) 0.050 (0.21) 0.051 (0.14)
TCZ 3 PI 0.038 (0.17) 0.544 (0.67)
Post 3 PI 0.149 (0.57) 0.152 (0.40)
TCZ 3 Post3 PI 1.126** (2.50) 1.294*** (2.59)
TCZ 3 R&D investment 0.123 (0.59) 0.773 (0.48)
scale
Post 3 R&D investment *
0.450 (1.77) 0.248 (0.65)
scale
TCZ 3 Post 3 R&D investment 0.922** (2.06) 0.994** (1.98)
scale
cons 0.217** (2.00) 0.173 (0.833) 0.149 (1.35) 0.078 (0.04)
Control variables N Y N Y
Time effect N Y N Y
Fixed effect N Y N Y
Observations 1,584 1,584 1,584 1,584 Table 3.
R2 0.036 0.322 0.041 0.323 Heterogeneity test
Note(s): N 5 None, Y 5 Yes results

production technology innovation in R&D intensive areas. In addition, columns (2) and (4)
show the results obtained by adding the control variables into the regression equation, the
results shows that the conclusions are robust.
4.4 Robustness test
In this subsection, this paper conducts a series of further robustness test. On the one hand, along
with the implementation of TCZ environmental regulation policy, the financial crisis erupted in
Asia in 1998. Hence, this paper collects the data of the ratio of import and export trade value to
the GDP in 1997 and creates an Asian financial crisis indicator. Due to the absence of import and
export volume in the prefecture-level cities, provincial data are collected for building an indicator.
The results of including the exogenous policy shock are shown in columns (1) to (3) of Table 4. On
the other hand, although the model of DID and DDD in this paper effectively handles the
endogenous problem, this paper re-estimates the regression coefficient based on the system
GMM method. The results are shown in columns (4) to (6) of Table 4.
The coefficients of TCZ 3 Post, TCZ 3 Post 3 PI and TCZ 3 Post 3 R&D investment
scale are significant after adding the financial crisis indicator into the regression equation; it
 32,4

746
MEQ

Table 4.
Robustness test results
Variables (1) (2) (3) (4) (5) (6)

TCZ 3 Post 0.628** (2.54) 0.075 (0.22) 0.051 (0.14) 0.475*** (4.45) 8.058*** (5.71) 8.973*** (4.24)
TCZ 3 PI 0.544 (0.67) 3.859* (1.74)
Post 3 PI 0.152 (0.40) 3.140*** (2.33)
TCZ 3 Post 3 PI 1.294*** (2.59) 20.952*** (6.97)
TCZ 3 R&D investment scale 0.773 (0.48) 4.386 (1.56)
Post 3 R&D investment scale 0.248 (0.65) 6.012*** (2.73)
TCZ 3 Post 3 R&D investment scale 0.994** (1.98) 21.623*** (5.13)
Import and export trade value 0.348 (0.22) 0.132 (0.09) 0.055 (0.02)
Control variables Y Y Y Y Y Y
Observations 1,584 1,584 1,584 1,584 1,584 1,584
R2 0.035 0.322 0.564
AR(1) 0.000 0.000 0.000
AR(2) 0.269 0.606 0.292
Sargen test 0.000 0.000 0.000
Note(s): Y 5 Yes
means that conclusion of the impact of TCZ environmental regulation policy on cleaner Impact of TCZ
production technology innovation is robust. In addition, the results based on system GMM environmental
show the conclusions obtained in this paper are robust. The value of AR(2) proves that the
null hypothesis is accepted at 10% significance level. In addition, the value of Sargen test is
regulation
greater than 0.1, that is, the instrument variables are available. policy

5. Conclusion and implication 747

This paper takes the TCZ environmental regulation policy as an example, collects the number
of patents related to coal desulfurization cleaner production technology in China’s prefecture-
level cities from 1994 to 2002 and employs DID method to examine the impact of TCZ
environmental regulation policy on cleaner production technology innovation. On this basis,
this paper uses the DDD method to further test the heterogeneity effect between TCZ
environmental regulation policy and cleaner production technology innovation from regional
R&D investment scale and regional pollution intensity two hands. The main findings of this
paper are as follows: (1) the implementation of TCZ environmental regulation policy
effectively improves China’s cleaner production technology innovation. (2) The positive effect
of TCZ environmental regulation policy on cleaner technology production innovation is more
significant in the heavy pollution areas. (3) With the expansion of regional R&D investment
scale, the promotion effect of TCZ environmental regulation policy on cleaner production
technology is more obvious. Based on the main findings, this paper puts forward the
following three management implication:
(1) Formulate appropriate environmental regulation measures. China is in an
opportunity period of economic transformation and industrial upgrading. The
formulation of appropriate regulatory measures is conducive to the effective
development of cleaner production technology innovation activities, which is also
conducive to the healthy and sustainable development of the economy. The impact of
environmental regulation on cleaner production technology innovation not only
depends on the severity of environmental regulation but also depends on the specific
environmental regulation measures. The “control” environmental regulation tools,
such as environmental standards and emission limits, lack sufficient incentives for
innovation subjects due to their strong compulsion. The “incentive” environmental
regulation tools, such as emission trading and environmental subsidies, provide
continuous incentives for innovation subjects and help to improve the ability of
cleaner production technology innovation. Therefore, the government needs to take
differentiated environmental regulation measures according to the level of
technology development and the degree of environmental pollution in different
regions. For the areas with serious environmental pollution, “control” environmental
regulation tools can be adopted to reduce the pollution emission intensity. For areas
with less environmental pollution and technology intensive industries, we can
flexibly use pollution charges, user charges, emission trading and other measures to
stimulate cleaner production technology innovation.
(2) Increase the support of public R&D funds. In view of the fact that environmental
regulation will crowd out private R&D funds, the government should give more
financial support and policy support to cleaner production technology innovation.
The government not only needs to formulate a sustainable development strategy and
provide more financial support for the innovation subject in research and
development but also needs to provide more tax incentives and financing channels
for the development of cleaner production technology activities and strengthen the
“compensation effect” of environmental regulation on cleaner production technology
MEQ innovation. Moreover, R&D is an important factor to promote cleaner production
32,4 technology innovation; the governments should promote the innovation factor flow to
innovative enterprises, thus further reducing the cost of environmental governance
and the risk of cleaner production technology innovation.

748 6. Limitations and further research

(1) This paper explores heterogeneity effect of TCZ environmental regulation policy on
cleaner production technology innovation from regional pollution intensity and R&D
investment intensity two perspectives. However, as a complex and systematic
economic activity, cleaner production technology innovation is affected by many
factors such as enterprise dynamic capabilities, human capital structure and so on.
Therefore, in the follow-up research process, we should focus on this issue and carry
out a more comprehensive analysis.
(2) This paper makes an empirical study on the relationship between China’s TCZ
environmental policy and cleaner production technology. In order to study the
impact of TCZ environmental policy and cleaner production technology in
the cross-cultural environment, the follow-up research should further expand the
research object, so as to provide a new explanation for different countries have
different cleaner production technology innovation under the constraints of
environmental regulation policies.

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Corresponding author
Xianyou Pan can be contacted at: pxybetter@163.com

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