Peer effects of environmental regulation on sulfur dioxide emission intensity: Empirical evidence from China

Abstract

Under the peer effect theory, this study examines the impact of environmental regulation on sulfur dioxide emissions and investigates the existence of peer effects in environmental governance mechanisms. Using panel data from 285 prefecture-level cities in China from 2008 to 2019, a spatial econometric model reveals that environmental regulation significantly reduces local sulfur dioxide discharge while exhibiting positive spatial spillover effects in surrounding regions, reflecting the “beggar-thy-neighbor” dilemma of environmental governance in China. The study confirms the presence of a positive peer effect of environmental regulation, supporting the combination of ‘top-down’ and ‘bottom-up’ ecological governance approaches. The impact of environmental regulation on sulfur dioxide emissions varies based on regulation intensities and urban characteristics such as geographical position, marketization degree, and official governor's tenure. Learning mechanisms and competition mechanisms partially establish the peer effect of environmental regulation in most Chinese cities. Additionally, exogenous shocks from macro events and strategic policies exert differential influences on the peer effect of environmental regulation, particularly in cities with low regulation intensity. This study provides valuable guidance for balancing environmental protection and sustainable economic growth, fostering intercity collaboration in environmental regulation, and formulating site-specific sustainable development strategies for China and other emerging economies.