How does energy regulation affect production and energy use within conglomerates? We study the effects of a large program aimed at reducing energy utilization of large Chinese companies. We conduct a difference-in-differences analysis that compares firms across sharp size-based criteria for regulation. Directly regulated firms experience declines in both production output and energy usage, but regulated firms do not see increases in energy efficiency. Using detailed data on business registrations, we link regulated firms to non-regulated firms that are part of the same conglomerate. We identify large spillovers across cross-owned non-regulated firms, which see increases in both output and energy utilization. We then use a calibrated model where conglomerates reallocate production across related firms to study the aggregate effects of the policy on allocative efficiency and energy consumption. Within conglomerate spillovers counter the direct effects on energy conservation of regulated firms and lead conglomerates to allocate resources to less productive and potentially less energy efficient firms.

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