China’s investment in energy industry to neutralize carbon emissions: evidence from provincial data

Investment in the new energy industry (IEI) and industrial pollution prevention (IPP) is an emerging strategy for carbon neutrality. However, little attention has been paid to exploring its direct linkage with environmental degradation. Therefore, the present study is an effort to contribute to a thin body of literature by recruiting IPP and IEI in China’s provincial-level carbon emissions (CO₂). With the use of the latest maximum data from 1998 to 2017, the long-run relationships are estimated through “augmented mean group estimator (AMG), panel fully modified ordinary least square (FMOLS), dynamic ordinary least square (DOLS), and Pairwise Dumitrescu Hurlin (DH) Panel Causality Tests.” According to the above-stated econometric techniques, IEI and IPP negatively affect CO₂ emissions, which means the reduction in environmental degradation. The study also validates the environmental Kuznets curve (EKC) hypothesis for 30 provinces of China. Additionally, IPP shows the long-run unidirectional causal relationship with CO₂ emissions, while income level has a bidirectional causal relationship with CO₂ emissions. Findings have robust policy implications for China’s provinces.