Environmental Regulation, Local Vulnerability and Enforcement: Evidence from an Emission Limit Policy in China

Crawford School of Public Policy | Tax and Transfer Policy Institute
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Event details


Date & time

Thursday 24 November 2022


Brindabella Theatre Level 2, JG Crawford Building 132, Lennox Crossing, ANU


Shawn Xiaoguang Chen, University of Western Australia


Diane Paul
02 61259318

In this seminar we will investigate the effect of environmental regulation on energy conservation and emission reduction, with a focus on how local economic and fiscal adversity caused may shape the incentives of prefectural governments to enforce the regulation. Based on unique firm-level national taxation survey data and city-level pollution data during 2011–2018, we exploit the Special Emission Limits of Air Pollutants (SELAP) policy from 2013 as a quasi-experiment. The policy variation over time across regions and industries allows us to identify the effect of coal energy conservation at the firm level with difference-in-difference-in-differences (DDD) method, and the emission of CO2, SO2, PM2.5 at the prefecture level with difference-in-differences (DD). The baseline results suggest that the policy has significant and lasting effects on energy conservation and emission reduction. Moreover, heterogeneity results show that the enforcement of the SELAP varies significantly across regions. The incentives of the enforcement are weaker if a prefecture is more vulnerable to the regulation — the prefecture has a greater share of polluting industries in value-added, total output, tax revenue, or employment. Quantitatively, the SELAP reduced the coal consumption of an average firm by 118 kilograms in producing 1 thousand Yuan of value added. However, the reduction is less by 7.69 kilograms if a city’s value-added share of polluting industries is 1% larger. The findings suggest the incentives and the behavioural response of local governments must be considered when designing and implementing environmental regulations.

Authors Shawn Xiaoguang Chen (UWA) (Speaker); Zhao Li (Central University of Finance and Economics); Bingyang Lyu (Renmin University of China)

Bio of speaker: Shawn (Xiaoguang) Chen is a Lecturer at the Business School of the University of Western Australia. He is also a Research Affiliate of the TTPI at Australian National University, Research Fellow with the NIFS based at Tsinghua University, the IPFT at Renmin University of China, the CCIE at Central University of Finance and Economics. He is interested in how tax systems and rent extraction affect productivity, development and growth. His papers published in Journal of Public Economics, Journal of Law, Economics, and Organization, Economic Letters, International Tax and Public Finance, Journal of Tax Administration, China Economic Review, and in top Chinese journals including Social Science in China (in Chinese《中国社会科学》), Economic Research Journal (in Chinese,《经济研究》). His work received the Gregory Chow Best Paper Award, and Best Paper Award from the First Public Finance Forum of China.

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