How environmental policy stringency affects total factor carbon productivity through renewable energy and environmental technology

In the face of escalating environmental challenges and the global push for sustainable development, understanding the impact of environmental policies on economic performance is increasingly vital. This study investigates the relationship between environmental policy stringency (EPS) and total factor carbon productivity (TFCP), emphasizing the roles of renewable energy consumption (REC) and environmental technology adoption (ETA). Using a comprehensive dataset from 40 countries over the period 1995 to 2019, we apply stochastic frontier analysis (SFA) to estimate TFCP and a fixed-effects model to evaluate the short-term and long-term impacts of EPS across different quantiles. Our findings indicate that while stringent environmental policies may initially suppress productivity due to compliance costs, they can ultimately enhance long-term productivity through innovation and efficiency improvements. However, overly stringent regulations may hinder TFCP due to rising compliance costs. The analysis further reveals that the influence of EPS on TFCP varies with the levels of REC and ETA. Specifically, REC demonstrates a rebound effect in the short term, where improved energy efficiency may paradoxically lead to higher overall energy consumption. Its long-term positive effects on TFCP become more significant as usage levels rise. In contrast, the impact of environmental technology remains ambiguous due to the complexities involved in evaluating these technologies and the intricate processes from innovation to implementation. This research contributes to a deeper understanding of how environmental policies can be tailored to support sustainable economic development across diverse contexts and technological maturity levels.