The effects of increasing emission Fee rates on Chinese firms' emissions: Evidence from a quasi-experiment

Over the last four decades, the Chinese government has predominantly employed emission fees as a regulatory strategy to mitigate pollution from firms. However, the effectiveness of escalating emission fee rates on the emission levels of Chinese firms has not been examined. This study utilizes data from more than 80,000 Chinese firms spanning 2004-2013, employing difference-in-differences models to assess the effects of rising emission fee rates on firm emissions. The findings indicate the following: (1) Increased emission fee rates substantially reduce sulfur dioxide and chemical oxygen demand emissions among Chinese firms; (2) These heightened fees encourage firms to implement both end-of-pipe treatment and source control for sulfur dioxide and end-of-pipe treatment for chemical oxygen demand; (3) The emission reduction effects vary according to firm ownership and size. This research offers empirical evidence on the efficacy of emission fee systems and provides valuable insights for developing market incentive-based environmental regulations in the future.