Strategic interaction in environmental regulation and sulfur dioxide emissions: Evidence from China

Abstract

Environmental regulation is the central government's main instrument for pollution control, but its actual implementation effect directly depends on the level of enforcement by local governments. Using panel data of 30 regions in Mainland China from 2004 to 2020 and a spatial Durbin model, we investigated the effects of strategic interaction among local governments in environmental regulation on sulfur dioxide (SO2) emissions. We found a “race to the top” behavior in the enforcement of environmental regulation among China's local governments. The enhancement of environmental regulation in a region or in its adjacent regions can significantly reduce SO2 emissions in that region, indicating that joint environmental governance can achieve considerable pollution control effects. Furthermore, influence mechanism analysis shows that the emission reduction effect of environmental regulation is primarily achieved through green innovation and finance. In addition, we found that environmental regulation has a significant negative impact on SO2 emissions in low-energy-consuming regions, but not in high-energy-consuming regions. Our findings indicate that China should continue to implement and deepen the green performance appraisal system for local governments and improve the efficiency of environmental regulations in high-energy-consuming regions.