Green investment efficiency in the Chinese energy sector: Overinvestment or underinvestment?

This paper comprehensively evaluates the efficiency of green investments in the Chinese energy sector using data for 113 relevant listed enterprises in 2010-2018. The general Richardson residual measurement model is introduced and an improved model is built by incorporating specific determinants of green investment (i.e., company governance, political connections, environmental policy restrictions, and pollutant emissions). Further, sample firms are divided into three sub-sectors: the renewable energy industry, the coal industry, and the oil and gas industry. This empirical study demonstrates that the Chinese energy sector as a whole receives an overall excessive level of green investment (overinvestment) compared with the estimated optimal investment level. Regarding specific sub-sectors, overinvestment is directed at the renewable energy industry, while the coal industry and the oil and gas industry are subject to underinvestment. Both models yield similar estimation results, suggesting that the results are stable and robust, and the specific determinants of green investment exert a limited impact on green investment efficiency. Based on the above, this study recommends emphasizing investments in highly preforming eco-projects, enhancing both environmental policy formulation and the oversight system based on differentiated industry characteristics, and developing a more complete and competitive factor market.