The effects of the environmental protection tax law on heavily polluting firms in China

In 2016, China implemented an environmental protection tax (EPTL2016) to promote the transformation and upgrading of heavily polluting industries through tax leverage. Using panel data of China’s listed companies, this study assesses the treatment effects of the EPTL2016 on the transformation and upgrading of heavily polluting firms by incorporating the intermediary role of the financial market. The empirical findings show that the EPTL2016 significantly reduced the innovation investment and productivity of heavily polluting firms but had no significant effect on fixed-asset investment. Additionally, EPTL2016 reduced the supply of bank loans to heavily polluting firms and increased the value of growth options for private enterprises and the efficiency of the supply of long-term loans to heavily polluting firms. Although the environmental policy of EPTL2016 benefits the transformation and upgrading of heavily polluting industries in many aspects, it generally hinders the industrial upgrading because of the reduction of bank loans.

How can we improve air pollution? Try increasing trust first

Environmental policies are characterized by salient short-term costs and long-term benefits that are difficult to observe and to attribute to the government's efforts. These characteristics imply that citizens’ support for environmental policies is highly dependent on their trust in the government's capability to implement solutions and commitment to investments in those policies. Using novel survey data from Mexico City, we show that trust in the government is positively correlated with citizens’ willingness to support an additional tax approximately equal to a day's minimum wage to improve air quality and greater preference for government retention of revenues from fees collected from polluting firms. We find similar correlations using the perceived quality of public goods as a measure of government competence. These results provide evidence that mistrust can be an obstacle to better environmental outcomes.

Transition bonds market will grow from slow start

Significance Lack of clarity over standards has held back transition bonds, but the rising imperative to reduce the carbon footprint of the most polluting firms in the coming years could provide impetus. This applies particularly to emerging economies. Impacts ESG-focused investors are likely to continue favouring green bonds over transition bonds as the latter means investing in brown sectors. ‘Transition washing’ (similar to ‘greenwashing’ among green bond issuers) will remain a problem. Investors will demand clear goals from issuers, further blurring the boundaries between transition bonds and sustainability-linked bonds. Recent developments suggest that the market for transition bonds could grow particularly fast in Asia Pacific.

Research Insights: What Role Does Trust in Government Play in Support for Public Policies to Improve Air Pollution?

Trust in government and the perceived quality of public services are positively correlated with support for an additional tax to improve air quality. Trust in government and the perceived quality of public services are positively correlated with a preference for government retention of revenue from fees collected from polluting firms as opposed to distribution of revenue directly to citizens. Trust in government and the perceived quality of public services are not significantly correlated with citizens preferences on the allocation of those revenues between public spending and private goods.

Climate change disclosure ratings: the ideological play

Purpose The purpose of this paper is to investigate the impact of climate change rating organisations on rated firms, to understand whether disclosure ratings can facilitate enhanced emissions performance. Design/methodology/approach This study uses 1,848 cross-country firm-year observations from organisations that responded to the carbon disclosure project (the rater) between 2011 and 2015 and, hence, were rated for their disclosure. Drawing on the ideology of numbers, this paper hypothesises that the disciplinary power of ratings will result in rated firms improving their subsequent disclosure scores. Following the environmentally-friendly ideology, this study hypothesises that poorly-rated firms will adopt decoupling behaviour, by improving their climate change disclosure scores without reducing the intensity of their greenhouse gas (GHG) emissions. Findings The results indicate that climate change disclosure ratings pressure poorly-rated firms to improve their disclosure scores in subsequent years, yet these firms are not inclined to lower their GHG emissions. Further, the direct publication of firms’ GHG emissions intensity can exert some restricted disciplinary impact on rated firms, as the more polluting firms tend to improve their subsequent climate change performance compared with those having lower emissions levels. Practical implications This paper argues that the ability of corporate sustainability rating schemes to influence corporate behaviour comprehensively is limited and should be used with caution. Originality/value This paper sheds new light on the ideological dynamics at play between the rater and the rated, while highlighting new aspects of the power-rating nexus in the climate change arena.

How Can We Improve Air Pollution?: Try Increasing Trust First

Environmental policies are characterized by salient short-term costs and long-term benefits that are difficult to observe and to attribute to the government's efforts. These characteristics imply that citizens' support for environmental policies is highly dependent on their trust in the government's capability to implement solutions and commitment to investments in those policies. Using novel survey data from Mexico City, we show that trust in the government is positively correlated with citizens' willingness to support an additional tax approximately equal to a days minimum wage to improve air quality and greater preference for government retention of revenues from fees collected from polluting firms. We find similar correlations using the perceived quality of public goods as a measure of government competence. These results provide evidence that mistrust can be an obstacle to better environmental outcomes.

The Impacts of Two Revisions of the China’s Environmental Protection Fee on Firm Performance: Evidence From Stock Markets

This comparative study aims to investigate how China’s environmental protection fee affected firm performance in two separate sample periods, namely 2001–2006 and 2012–2017, as this policy was revised twice in 2003 and 2014. With the Difference-in-Differences (DID) estimation, we find that the second revision of environmental protection fee had a negative impact on heavy polluting firms, while the influence of the first revision seemed to be insignificant. Moreover, the environmental protection fee had a limited impact on other firms, implying that such a policy had achieved its designed effect by precisely governing heavy polluters. Besides, our additional tests show that the environmental protection fee had stronger impacts on non-connected firms and non-SOEs than politically connected firms and SOEs. Our results are robust to various potential endogeneity issues.

The role of nonzero conjectural variation in pollution abatement and output in the design of emission taxes

The presence of nonzero conjectural variations in pollution abatement and output make emission taxes less effective with respect to reducing emissions. This has implications for the characterization of the optimal emission tax, particularly in an international context where there are large asymmetries in pollution intensities. A higher degree of collusion in output between polluting firms results in higher emissions taxes in the non-cooperative equilibrium. In contrast, a higher degree of collusion in abatement between polluting firms results in lower emissions taxes in the non-cooperative equilibrium. These results rely on the presence of nonzero conjectural variations and large asymmetries in pollution intensities across countries. The analysis is relevant to the design of international environmental policy, including cases where countries face increasing global competition and damages from rising global emissions.