More incentive, less pollution: The influence of official appraisal system reform on environmental enforcement

Abstract

This paper sheds light on the effectiveness of a target-based performance evaluation system (TPES) on strenghening local environmental enforcement in China. We conduct a difference-in-differences (DiD) specification and then exploit unique firm-level data to examine whether the TPES reform facilitates SO₂ reductions in local firms. The results indicate that SO₂ emissions from local polluting firms have been significantly reduced both in extensive and intensive margins. We also find that local environmental enforcement has been comprehensively enhanced across industries and larger private and joint-equity firms are relatively more regulated. Furthermore, local firms respond to this reform mainly by using the end-of-pipe treatment and upgrading the much cleaner production process rather than reducing the production over the period.