Corporate responses to air quality regulation: Evidence from a regional environmental policy in China

Abstract

This study examines how firms have responded to the most stringent air quality regulation in China's history, known as the “Action Plan for Air Pollution Prevention and Control”. The main goal of the regulation is to improve air quality in three regions of the country. Based on an analysis of a large sample of manufacturers, our findings show that the Action Plan caused those regulated firms with high emission intensity to decrease waste gas emissions. Meanwhile, with the regulation in place, the firms' output did not decrease, implying that the scale effect was not a driving force behind the emission reduction. Further analysis suggests that the reduction was likely driven by the regulation's technique effect via substituting non-energy materials and intermediates for coal.