Opening the black box of environmental governance: Environmental target constraints and industrial firm pollution reduction

Abstract

Due to the increasingly serious problem of environmental pollution, environmental governance in various countries is constantly improving. To open the black box of environmental governance, this study assesses whether and how environmental target constraints affect pollution emissions from the perspective of firms’ behavior. Based on the exogenous impact of including environmental performance in officials' evaluations, the continuous difference-in-differences (DID) method was used. Benchmark analysis showed that the environmental target constraint policy effectively reduced the SO2 emissions of firms, especially polluting firms, and inhibited the emission of other air pollutants, exerting a collaborative governance effect on multiple pollutants. Expansion analysis showed that the environmental target constraint policy was beneficial for optimizing the energy structure and strengthening the pollution control of firms. However, the environmental target constraint policy did not effectively promote the green technology innovation of Chinese industrial firms. In addition, as a result of environmental target constraints, the distribution of the SO2 emission intensity of firms in each region tended to be uniform through an asymmetric impact on the entry and exit behavior of firms with different pollution levels. This study presents an objective foundation for developing an effective pollution control policy framework for other countries, especially developing countries.