Pollution Abatement Investment Research Articles

Do investment tax incentives promote firm pollution abatement investment? Evidence from China’s value-added tax reform

Using the 2009 consumption-based value-added tax (VAT) reform in China as a quasi-natural experiment for investment tax incentives, we investigate the impact of investment tax incentives on firm pollution abatement investment via a difference-in-differences (DID) approach. We find that the investment tax incentives have significantly raised firm pollution abatement investment of the eligible firms over the ineligible firms by 21.7%. Moreover, the effect is more pronounced for firms with political connection and firms located in regions with stricter environment regulation and lower pollution abatement costs. Our mechanism shows that the motivations for tax deduction play an important role in increasing pollution abatement investment. We also find that VAT reform has a negative indirect impact on firm environmental fine and firm employments and has a positive impact on firm’s capital-labor ratio and labor productivity.

Analyst Coverage and Corporate Environmental Policies

Abstract Exploiting two quasi-natural experiments, we find that firms increase emissions of toxic pollution following decreases in analyst coverage. The effects are stronger for firms with low initial analyst coverage, poor corporate governance, and firms subject to less stringent monitoring by environmental regulators. Decreases in environmental-related questions raised in conference calls, an increased cost of monitoring to institutional shareholders, reductions in pollution abatement investment, and the weakening of internal governance related to environmental performance are channels through which reduced analyst coverage contributes to increases in firm pollution. Our study highlights the monitoring role analysts play in shaping corporate environmental policies.

Pollution Abatement Investment under Financial Frictions and Policy Uncertainty

Pollution Abatement Investment under Financial Frictions and Policy Uncertainty

How environmental performance affects firms’ access to credit: Evidence from EU countries

In response to climate change and environmental degradation, the European Union has recently proposed a long-term strategy targeting a climate-neutral economy by 2050.Sustainable finance plays a crucial role in reducing a country's production-generated emissions since limited access to credit hampers firms from investing in pollution abatement technology. Additionally, high collateral requirements may force firms to replace pollution abatement investment with tangible assets, which are often preferred as collateral in debt financing. Using survey data from firms in ten EU member states, this study investigates the impact of a firm's environmental performance on bank lending decisions and collateral requirements. Our empirical findings suggest that, for the sample countries as a whole, eco-friendly firms are more likely to receive a line of credit and less likely to be imposed collateral requirements. For collateralized loans, desirable environmental performance reduces the odds of high collateral value relative to loan size. Sustainable finance may depend on the levels of economic/financial market development. There are seven EU new member states (NMS) in our sample. Although financial institutions in the EU NMSs reward eco-friendly firms when they make lending decisions, they are less likely to consider environmental performance when imposing collateral requirements. These empirical findings hence provide insightful policy implications for improving the practices of sustainable finance.

Transboundary Pollution Abatement, Emission Permits Trading and Compensation Mechanism: A Differential Game Analysis

In this paper, we consider a pollution control problem along a river basin where a portion of the pollution emitted by the upstream region can be transferred to the downstream region. Our model has three significant features: first, we take into account the pollution abatement investment, and the stock of pollution abatement capital follows standard differential equation of motion; second, we introduce the emission permits trading system so that each region has the choice between buying pollution permits or pollution abatement investment; third, we consider the pollution compensation mechanism so that the downstream region pays pollution compensation for the upstream region. We explore and compare the optimal decisions of both the upstream and downstream regions under the cases of the cooperative and no-cooperative strategies, respectively. We find that although the flow of emissions can be better controlled by cooperation between the upstream and downstream regions, the pollution abatement investment is not necessarily higher in the cooperative equilibrium. Further, a sensitivity analysis is also conducted on the parameters of the transboundary river basin pollution.

The Effects of the EU ETS on Pollution Abatement Investments

The Effects of the EU ETS on Pollution Abatement Investments

Dynamic Optimal Control of Transboundary Pollution Abatement under Learning-by-Doing Depreciation

This paper analyzes a dynamic Stackelberg differential game model of watershed transboundary water pollution abatement and discusses the optimal decision-making problem under non-cooperative and cooperative differential game, in which the accumulation effect and depreciation effect of learning-by-doing pollution abatement investment are taken into account. We use dynamic optimization theory to solve the equilibrium solution of models. Through numerical simulation analysis, the path simulation and analysis of the optimal trajectory curves of each variable under finite-planning horizon and long-term steady state were carried out. Under the finite-planning horizon, the longer the planning period is, the lower the optimal emission rate is in equilibrium. The long-term steady-state game under cooperative decision can effectively reduce the amount of pollution emission. The investment intensity of pollution abatement in the implementation of non-cooperative game is higher than that of cooperative game. Under the long-term steady state, the pollution abatement investment trajectory of the cooperative game is relatively stable and there is no obvious crowding out effect. Investment continues to rise, and the optimal equilibrium level at steady state is higher than that under non-cooperative decision making. The level of decline in pollution stock under finite-planning horizon is not significant. Under the condition of long-term steady state, the trajectories of upstream and downstream pollution in the non-cooperative model and cooperative model are similar, but cooperative decision-making model is superior to the non-cooperative model in terms of the period of stabilization and steady state.

Cost-Effectiveness Implications of Carbon Price Certainty

While a firm knows the carbon price with certainty under a tax, it must form an expectation about future allowance prices to identify its cost-effective abatement investment under a capand-trade program. We illustrate graphically how errors in forming this expectation increase the costs of irreversible pollution abatement investment under cap-and-trade relative to a tax. We describe empirical “cost-effectiveness anomalies” in allowance markets that may be attributed to cap-and-trade's inherent uncertainty. We model investment under simulated US carbon tax and cap-and-trade policies and find that allowance price uncertainty can increase resource costs 20 percent for a given quantity of emission abatement.

Dynamic decision of transboundary basin pollution under emission permits and pollution abatement

In this paper, we develop a dynamic decision model of transboundary basin pollution with emission permits trading and pollution abatement investment. In our model, the stock of pollution abatement evolves according to the standard capital accumulation dynamics equation, the emission permits are bought or sold at price which is be determined by the equilibrium conditions of the permit market. The main objective of this paper is to explore the optimal levels of pollution emission and emission abatement investment under the regions’ non-coalition and coalition strategies, such that the discounted stream of regions’ net revenues is maximized. Our results show that (i) the upstream coalition can help the upstream region to increase the pollution abatement investment and decrease the pollution emission; (ii) in contrast, the downstream coalition can help the midstream region to increase the pollution abatement investment and decrease the pollution emission

Incentive equilibrium strategies of transboundary industrial pollution control under emission permit trading

In this paper, we investigate the incentive equilibrium strategies of two neighboring regions facing transboundary industrial pollution under abatement investment and emission permits trading in a differential game setting. Our paper can be viewed as an extension of the work of Yeung [2007. Dynamically consistent cooperative solution in a differential game of transboundary industrial pollution. Journal of Optimization Theory and Applications, 134, 143–160] in the context of the transboundary industrial pollution. Compared with the work of Yeung [2007. Dynamically consistent cooperative solution in a differential game of transboundary industrial pollution. Journal of Optimization Theory and Applications, 134, 143–160], our research significant features (i) introduce the emission permits trading into the transboundary industrial pollution control;(ii) take into account the pollution abatement investment; (iii) examine the incentive equilibrium strategies of transboundary industrial pollution control; and (iv) design an allocation mechanism for regions’ cooperative profits. Furthermore, we illustrate the results of the paper with a numerical example. The utility of this paper is how to make incentive equilibrium strategies in a situation where the neighboring regions facing transboundary industrial pollution under abatement investment and emission permits trading in a differential game setting.

Reconciling the Porter hypothesis with the traditional paradigm about environmental regulation: a nonparametric approach

This paper estimates the impact of pollution abatement investments on the production technology of firms by pursuing two new directions. First, we take advantage of recent econometric developments in productivity, efficiency analysis and nonparametric kernel regression by adopting a conditional nonparametric frontier analysis. Second, we focus not only on the average effect but also search for potential nonlinearities. We provide new results suggesting that pollution abatement capital affects with a bell-shaped fashion technological catch-up (inefficiency distribution) and does not affect technological change (shifts in the frontier). These results have relevant implications both for modeling and for the purposes of advice on environmentally friendly policy.

The Effects of Mandatory Pollution Abatement on Corporate Investment and Performance: Theory and Evidence from a U.S. Regulation

We provide a theoretical and empirical analysis of how pollution abatement regulation or the designation of nonattainment status affects corporate investment and performance. If consumers value environmental awareness, spending on mandatory pollution abatement and other investment are complements for financially unconstrained firms but substitutes for financially constrained firms. Financially unconstrained firms invest more, have lower current profits but higher future profits while constrained firms invest less, have stable current profits and lower long-term profits. This paper shows that firms’ financial resources are determinants of whether environmental regulation crowds out or stimulates R&D investment and capital expenditure.

Financial Constraints and Environmental Corporate Social Responsibility

This paper analyzes the effect of financial constraints on firms' corporate social responsibility. Exploiting heterogeneity in firms' exposure to a monetary policy shock in the U.S., which reduced financial constraints for some firms, I find that firms increase their environmental responsibility. I use facility-level data to account for unobservable time-varying influences on pollution and find that toxic emissions decrease when parent companies are more exposed to the monetary policy shock. I further find that these facilities are also more likely to implement pollution abatement activities. Examining within-parent company heterogeneity I find that pollution abatement investments center on facilities at greater risk of facing additional costs due to environmental regulation. The findings are consistent with the idea that a reduction in financial constraints reduces pollution as it allows firms to implement pollution abatement measures.

Investigating air quality status and air pollutant trends over the Metropolitan Area of Tehran, Iran over the past decade between 2005 and 2014.

Studies on the trend of air pollution in Tehran, Iran, as one of the most polluted metropolis in the world are scant, and today Tehran is known for its high levels of air pollutants. In this study, the trend of air pollution concentration was evaluated over the past 10 years (2004-2015). The data were collected from 22 stations of the Air Quality Control Company. Daily concentrations of CO, NO2, SO2, O3, PM10 were analyzed using SPSS 16 based on the statistical method, repeated measures, and intra-group test to determine the pattern of each pollutant changes. As a result of the 22 air pollution monitoring stations, NO2 and SO2 concentrations have been increasing over the period of 10 years. The highest anomaly is related to SO2. The CO concentrations represent a descending pattern over the period, although there was a slight increase in 2013 and 2014. The O3 concentrations declined in the following years. The average concentration of PM10 has been rising during the period. Also we evaluated changes of each pollutant in different months and calculated the number of clean, healthy, unhealthy days for sensitive, unhealthy, very unhealthy, and dangerous groups. The study findings illustrated the necessity for larger investment in air pollution abatement. Overall, trends have been progressed to worsening, the number of healthy days has been declined and the number of unhealthy days has been increased in recent years.

Environmental policy and human capital inequality: A matter of life and death

This paper analyzes the economic implications of an environmental policy when we account for the life expectancy of heterogeneous agents. In a framework in which everyone suffers from pollution but health status also depends on individual human capital, we find that the economy may be stuck in a trap in which inequality rises steadily, especially when the initial pollution intensity of production is too high. We emphasize that such inequality is in the long run costly for the economy in terms of health and growth. Therefore, we study whether a tax on pollution associated with an investment in pollution abatement can be used to address this situation. We show that a stricter environmental policy may allow the economy to escape from the inequality trap while enhancing the long-term growth rate when the initial inequality in human capital is not too large.

Study on environment-economy-society relationship model of Liaohe River Basin based on multi-agent simulation

Based on sustainable development theory and the method of system dynamics and multi-agent simulation, the environment-economy-society relationship model of Liaohe River Basin is constructed by coupling the system dynamics model with the multi-agent model in the software-NetLogo. This paper selects the Qinghe, Fanhe and Puhe River of Liaohe River Basin which are located in Shenyang and Tieling City as the study boundary, then the overall situation of environment, economy and society development is analyzed. At the same time, in order to simulate and predict the overall operation of the model under different policies, three kinds of development scenarios are established by changing some key variables including pollution abatement investment, fixed assets investment and industrial waste water production of ten thousand yuan industrial output value. The results show that the development under different policies can be simulated and predicted by this model, which will provide support for macroeconomic regulation and control the sustainable development strategy of Liaohe River Basin.

How measurement framing and accounting information system evaluation mode influence environmental performance judgments

How does information presentation within an accounting information system (AIS) influence environmental performance judgments? Decision makers generally analyze alternatives' performances in one of two evaluation modes: jointly or separately. Joint mode provides greater measure evaluability because of available comparisons between alternates. Thus, additional information garners greater decision weight in separate mode, where less contextual information exists. However, many environmental decision settings use separate evaluation mode because of no viable alternatives (e.g., large pollution abatement investments). In this setting, General Evaluability Theory (GET; Hsee and Zhang, 2010) suggests low measurement evaluability when low measurement knowledge and non-inherently understood measures exist—both common characteristics in environmental settings. This study introduces attribute framing to the GET framework as important to consider when analyzing environmental decision differences across modes, because frames are often a necessary component of information presentation and different descriptions often lead to different decisions (Dunegan, 1993). Experimental participants (n=206) evaluated factory environmental performances with joint/separate mode and positive/negative attribute framing. Findings inform AIS designers as results suggest evaluation mode moderates the presentation of attribute frames on decisions. Specifically, higher (lower) evaluations occur when using positive (negative) framing, and this effect is more (less) pronounced in separate (joint) mode. Findings also suggest that more consistent judgments occur across evaluation mode with positive compared to negative framing of performance measures.

The action mechanism analysis of environmental pressures on the development of environmentally friendly technologies using a neo-schumperian model

In order to analyze the action mechanism of environmental pressures on the development of environmentally friendly technologies (EFTs), this paper constructs a neo-schumpeterian simulation model containing firms' production, pricing, pollution abatement investment, (environmental) R&D, entry & exit decision-making and consumer choice behavior. The objective of this paper is to investigate the influence of consumer demand preferences and environmental policies on firms’ environmental investment decision-making as well as the development of EFT. Results showed that consumers prefer product price, a market-based instrument (MBI) combined with an information-oriented instrument (IOI) can promote the development of EFT, while MBI applied alone will reduce environmental investment. Under scenarios that consumers prefer product quality, a command and control environmental policy (CAC) can promote the development of EFT to a greater extent, but it inhibits environmental investment and damages the average profit rate of profit of the industry. If consumers prefer environmental performance of firms, CAC or IOI is advantageous to the change of EFT. However, in such a case environmental investment and consumer utility are reduced.

Dynamic optimal control of pollution abatement investment under emission permits

In this paper, we investigate the relationship between the emission permits and the abatement investment. Our results show that the system admits saddle point steady state equilibrium, and that the allocation coefficient of emission abatement labor depends on the monotonicity of the indirect utility function. Further, a sensitivity analysis is conducted to study the effect of changing monetary parameters on optimal emission level, etc. Furthermore, we illustrate the general solutions, and present some numerical examples.

Motivating Suppliers' Sustainability Performance via Investments in Pollution Abatement Innovations

We consider the actions of two suppliers investing in pollution abatement innovations and also choosing end-of-pipe pollution reduction levels when the buyer chooses different sourcing strategies. To encourage improvements in environmental performance of suppliers in emerging economies, the buyer either sources from both suppliers and allocates more market share to the one with better environmental performance, or sources from only one supplier and gives the one with better environmental performance a higher chance of winning the contract. We consider two dimensions of a buyer's choices: the sourcing strategy (single vs. dual sourcing) and the order allocation mechanism (either linear or proportional). Through equilibrium analysis of this stylized model, we study whether the action of one supplier on investing in pollution abatement will always improve both suppliers' end-of-pipe pollution reduction levels under the various scenarios described. We examine which sourcing strategy encourages more supplier investment in pollution abatement and which strategy results in a higher total production reduction level for the entire supply chain. We also study the buyer's optimal choices of contract terms (the wholesale price and the order adjustment parameter of the order allocation mechanism) to balance her economic objective with her sustainability objective.