The effects of heterogeneous environmental regulations on water pollution control: Quasi-natural experimental evidence from China

Abstract

The policy effect of environmental regulations on water pollution has been widely discussed, but few studies have empirically tested the relative effectiveness of heterogeneous environmental regulations—command-and-control environmental regulations and market-based environmental regulations—on water pollution control. Using the difference-in-difference method, this paper takes advantage of two Chinese policies—the National Key Ecological Functional Areas Policy (NKEFAP), which can be regarded as a command-and-control environmental regulation, and the Transfer Payment of Ecological Functional Areas Policy (TPEFAP), which can be regarded as a market-based environmental regulation—as quasi-natural experiments to examine the relative effectiveness of different environmental regulations on water pollution control. The results show that both the NKEFAP and TPEFAP can reduce water pollution, but the reduction effect is higher for the TPEFAP than for the NKEFAP. For underlying mechanisms, the NKEFAP and TPEFAP reduce water pollution mainly by controlling industrial waste discharge, rather than by controlling agricultural and domestic pollution. Heterogeneity analysis reveals that counties with higher initial pollution levels and higher economic levels have a greater water pollution reduction effect. Our findings contribute to the understanding of the effect of heterogeneous environmental regulations on pollution control and are conducive to future policymaking.