How do multi-faceted environmental policies enhance the production efficiency of enterprises?-Mechanisms discovery...

Carbon neutrality has gained considerable attention globally, and the impact of environmental policy on businesses has been extensively studied. However, the mechanism through which environmental policy affects production efficiency within the enterprise remains unclear. The objectives of this paper are: 1. To analyze the effects of different environmental policies on the production efficiency of enterprises; 2. From the perspective of production process transformation, the mechanism of these policies affecting production efficiency is comprehensively examined. This paper adopts a novel approach, grounded in the Porter Hypothesis, to analyze the impact of environmental policy on enhancing firm-level production efficiency. Specifically, we utilized data from Chinese listed companies to examine the influence of environmental policy on total factor productivity and its underlying mechanisms. To explore the different impacts of environmental policies, we separate them into environmental regulatory policies and incentive environmental policies. Our results suggest that regulatory and incentive-based environmental policies can enhance firm-level production efficiency through three primary mechanisms: 1. Regulatory environmental policies promote green innovation, leading to cleaner production processes and improved efficiency.2. Incentive-based environmental policies and regulatory environmental policies encourage firms to invest in environmentally-friendly practices, resulting in cleaner production and increased efficiency.3. Both types of policies can stimulate fixed factor input and improve production efficiency through industrial upgrading. Furthermore, our analysis revealed interesting new findings regarding the heterogeneity of firm property rights and pollution levels. Finally, we propose policy recommendations to assist the government in achieving green economic development.