Can China’s government-oriented environmental regulation reduce water pollution? Evidence from water pollution intensive firms

Abstract

China’s environmental regulation regime remains mainly government-oriented, consisting of the government environmental investment policy and the command–control policy. This paper first improves the traditional environment Copeland-Taylor model by including the above two types of government-oriented environment instruments. Then, based on a comprehensive firm-level dataset, we examine the effects of government-oriented environmental instruments on firms’ water pollutant emission abatement in the Yangtze River Economic zone. We find robust evidence of a significant decrease of 2.99% in chemical Oxygen Demand(COD) discharge and of 3.55% in ammonia nitrogen(NH3) discharge of firms in response to the government environmental investment policy, whereas the command–control instrument shows little effect on firms’ water pollutant emission reduction. Our results are robust when using alternative measurements for two types of environmental instruments. Additionally, we also find there exist heterogeneous effects across sub-samples: (1)comparing with large and medium firms, small and micro firms are more liable to be influenced by the two types of government-oriented environmental instruments; (2) the effect of two types of government-oriented environmental instruments is obviously significant in the intensive-water-pollution industry, whereas it is not obvious in clean industry; (3) the effect of government environmental investment is obvious on state-owned enterprises and domestic joint ventures, whereas the command–control policy has effectively reduced the water pollutant discharge for domestic joint ventures and private firms. Finally, this study also presents some future policy implications.