Policy Implementation Inconsistency and Emission Leakage: Evidence from The Closure of Polluting Firms.

Abstract

Public policies often fail to address the unintended behavior of regulated firms and are therefore inconsistent in their implementation, resulting in ineffectiveness. In the process of environmental policy, policy implementation inconsistencies also exist, which is known as emission leakage. Existing studies on the topic focus more on spatial dimension and less attention to time dimension. The reasons for emission leakage over time are two: regulatory laxness and inefficiencies. In this study, we examine whether emission leakage occurs during enterprises' end-of-life cycles. Based on unique high-frequency facility-level monitoring data, we construct a difference-in-differences (DID) model to investigate differences in environmental performance between hazardous chemical production firms in the process of closing and those in the same industry within 20 kilometers. This study finds no emission leakage problem in the processes of relocation and closure, and the concentration of chemical oxygen demand (COD) discharged declines by 28.53 percent. This result is mainly due to top-down regulatory requirements. Nevertheless, policymakers should remain aware of emission leakage when formulating environmental policies and create more substantial supervision to prevent potential leakage.