How does environmental regulation affect haze pollution governance?—An empirical test based on Chinese provincial panel data

Highlights

• The direct impact of environmental regulation (ER) on haze pollution is explored.

• The indirect impact of ER on haze pollution is explored.

• ER has inhibited haze pollution and achieved the expected effects.

Abstract

Recently, haze pollution is the most serious air problem in China. In the process of haze pollution governance, environmental regulation not only has a direct impact on haze pollution but may also affects haze pollution indirectly through four transmission channels, which are coal consumption, foreign direct investment (FDI), industrial structure and technological innovation. The purpose of this paper is to clarify how environmental regulation affects haze pollution governance through both direct and indirect impacts. Based on the difference Generalized Method of Moments (GMM), this paper explores the direct and indirect impact of environmental regulation on haze pollution governance over the period 2006–2016. The results show that China's current environmental regulation had effectively inhibited the haze pollution and achieved the expected effects. For coal consumption, it significantly aggravated haze pollution, but the ER implemented or not. However, environmental regulation provided a force mechanism to promote transformation and upgrading of industrial structure, thus to reverse the impact direction of industrial structure on haze pollution and mitigated the haze pollution. Moreover, the results indicate that FDI in China turned out to have a “pollution halo” effect and reduced the degree of haze pollution, while technological innovation had the “compliance cost” effect and increased the degree of haze pollution. Additionally, we find that automobile exhaust emissions and economic development were also important reasons for the increase of haze. According to the results, some policy implications were provided for the future haze pollution governance.

Introduction

While China's economy has boomed ever since the reform and opening-up in the last decades, environmental problems, especially air pollution, have also deteriorated rapidly. Since 2013, haze pollution dominated by PM₁₀ and PM_2.5 has threatened the daily life and health of Chinese people seriously and become even more severe in recent years. In 2013, more than 100 large and medium-sized cities from 25 provinces were affected by haze pollution, and there was nearly one month a year of haze pollution in average nationwide. The severe haze pollution has aroused wide attentions at home and abroad. Therefore, the effectiveness of haze pollution governance is crucial to sustainable development, industrial restructuring and people's health. At the pressure of reducing air pollution and improving environmental quality, Chinese government has promulgated a series of regulations and policies to reduce pollutant emissions and protect the environment. As a result, the contribution of this paper is to clarify how effective is the environmental regulation in the haze pollution governance.

The Chinese government has issued a series of environmental regulation policies to mitigate haze pollution. In 2013, the Chinese State Council promulgated the Air Pollution Prevention and Control Action Plan. In 2014, the National People's Congress revised the law. China modified the Law on Prevention and Control of Atmospheric Pollution in 2015, which was officially implemented on January 1, 2016. In June 2018, the State Council issued the Three-Year Action Plan to Win the Blue Sky Defense War, which became the next guideline for air pollution prevention. Although China has taken many measures to curb atmospheric pollution, China's environmental quality seems to be continuously worsening and there is still a long way to reach people's expectation and requirement for a sustainable development of the economy and society. In other words, the haze pollution remains a major problem. To what extent is the environmental regulation effective on haze pollution governance in China? However, this question has not been fully answered so far.

In existing literature, many scholars studied the effectiveness of environmental regulation on pollution control, using different methods and from different perspectives, leading to some different conclusions. Some literature states that environmental regulation is the dominant factor in increasing air quality. A study by Laplante and Rilstone (1996) in Quebec, Canada, found that government environmental regulation would force companies to issue more comprehensive and accurate pollutant emission reports, which stimulated the companies to reduce air pollutant emissions. Dasgupta et al. (2002) used GMM estimation method to analyze the data of Zhenjiang polluting enterprises from 1993 to 1997, and found that environmental regulation had promoted the reduction of air pollutants significantly. Shapiro and Walker (2015) used manufacturing data in the US from 1990 to 2008 to examine the role of several factors in reducing air pollution, finding that environmental regulation contributed the most to the reduction of haze pollution. However, some scholars have drawn conclusions that environmental regulation could not solve pollution problems effectively. Greenstone (2004) tested the effectiveness of the Clean Air Act in reducing the concentration of sulfur dioxide, concluding that it played a minor role from 1970s to 1990s in the US. Blackman and Kildegaard (2010) found no evidence that stricter regulation would increase the adoption of cleaner technologies when studying plant-level data. The effectiveness of traffic restrictions on air pollution is also a subject of debate (Zhong et al., 2017).

The research on this question within China has been a late starter. Some scholars believed that China's environmental regulation had alleviated environmental pollution effectively. Based on econometric models, Zhang et al. (2009) found that, under strict environmental regulations, the inflection point of the environmental Kuznets curve (EKC) in Shandong Province would appear earlier than that of the nationwide, and the per capita pollutant emission in Shandong had declined significantly, which was lower than the per capita pollutant emission nationwide. Using a two-step GMM method and the provincial panel data from 2000 to 2011, Zhang and Wei (2014) found that China's current environmental regulation could suppress carbon emissions effectively. However, some scholars found that environmental regulation could not solve environmental pollution efficiently. Chen and Cheng (2017) used the difference-in-differences (DID) method to assess the effectiveness of Chinese Two Control Zones policy, and found that stricter environmental regulation indeed led to a lower level of pollution but mainly because of the shift of polluting firms from targeted regions to non-targeted regions. Wang and Xu (2015) analyzed the effect of environmental regulation on the decoupling of industrial development from haze pollution, and found that the stricter economic environmental regulation would weaken the decoupling effect, from the perspective of enterprises' investment preference. Qiu and He (2017) employed the DID method to study the effectiveness of the Green Traffic Pilot Cities Program, suggesting that green traffic reduced air pollution significantly in pilot cities. Guo and Lu (2019) investigated the relationship between air quality and jurisdictional fragmentation in China by a spatial regression model, finding that the number of regulatory units per square kilometer within a prefecture-level city has a significantly negative effect on air quality.

To sum up, many researchers only consider the direct effect of environmental regulation on haze pollution, while few studies looked into the ways in which environmental regulation affects haze pollution indirectly. The innovation of this paper is to study both the direct and indirect impact of environmental regulation on haze pollution governance, using difference GMM method. Based on the data of 30 provinces in China (except Tibet) from 2006 to 2016, we analyze the direct impact of environmental regulation's effectiveness on haze governance. We also examine the indirect impact through four transmission channels, which are coal consumption, FDI, industrial structure and technological innovation, by including the cross-section terms of these factors.

The remainder of the paper is organized as follows. Section 2 describes mechanism analysis. Section 3 lays out the methods. Section 4 presents main findings and results. Section 5 concludes and discusses the policy recommendations.