The impact of strict environmental regulations on firms heterogeneous choices of pollutant abatement technology

This paper aims to explore how regional environmental regulations affect firms' choice of pollution abatement technologies. Using a novel city-level dataset on environmental regulatory stringency and a dataset on firm-level pollution in China, we investigate the effect of environmental regulations on firm responses, represented by the choice between production process control and end-of-pipe treatments. The estimation results from the difference-in-difference-in-differences analysis show that stricter environmental regulations induce production process control and end-of-pipe treatments in firms. More importantly, we find a substitutionary relationship between production process control and end-of-pipe treatments. The heterogeneity analysis suggests that small firms, firms with a low pollution abatement capacity, and firms in cities with special policy zones tend to choose production process control. In contrast, large firms and those with a high pollution abatement capacity prefer to choose end-of-pipe treatments.