Environmental regulation and green transition: Quasi-natural experiment from China's efforts in sulfur dioxide emissions control

Abstract

Exploiting the target-based pollutant emissions abatement policy imposed on the Two Control Zones in the post-2000 period as an exogenous shock to the strengthening of environmental regulation, we empirically investigate its causal effect on the green transformation of Chinese manufacturing enterprises with the difference-in-differences identification strategy. The empirical results show that the target-based pollutant emissions abatement policy for the Two Control Zones in the post-2000 period effectively binds regulated enterprises’ sulfur dioxide emissions behavior and lowers their sulfur dioxide emissions intensity, indicating that strict environmental regulation contributes to the green transition of enterprises. To avoid the self-selection bias, we re-evaluate the green transition effect of the target-based pollutant emissions abatement policy by employing the propensity score matching with the difference-in-differences technique. Our finding that strict environmental regulation facilitates the green transition of enterprises still holds. Our heterogeneity analyses reveal that enterprises exposed to greater environmental regulation intensity experience a larger reduction in their pollution emissions intensity. State-owned enterprises and those with higher production efficiency are more inclined to achieve green transition under environmental protection pressure. Further mechanism checks confirm that enterprises reduce pollution emissions intensity by upgrading pro-environmental technology rather than increasing expenditure on pollution abatement facilities.