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The effects of an environmental accountability system on local environmental governance and firms’ emissions

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  • Yu, Hongwei
  • Xu, Jiahui
  • Shen, Fang
  • Fang, Debin
  • Shi, Daqian

Abstract

The Chinese central government introduced the environmental accountability system (EAS) policy in 2006 to encourage local governments to execute environmental policies appropriately. However, the effects of this EAS policy have not been investigated at the firm level. In this study, we first measured the environmental governance intensity of local governments by calculating the environment word portion (EWP) of the annual governments’ work reports and found that local governments increased their efforts after the EAS policy implementation. We then constructed a continuous difference-in-difference (DID) strategy to estimate the effect of the EAS on firms’ emission and found that firms significantly reduced their sulphur dioxide (SO2) emission under the regulation intensity of local governments after the EAS policy. The reductions are mainly because of the private, non-export, labour- and capital-intensive firms. The EAS policy may encourage firms to reduce coal usage, design more products, decrease capacity investment and even withdraw from the market, thus reducing pollutant emission. Finally, we tested firms’ response in various polluting sectors and found that the EAS policy may cause local governments to fail in distinguishing low pollution sectors from high pollution sectors.

Suggested Citation

  • Yu, Hongwei & Xu, Jiahui & Shen, Fang & Fang, Debin & Shi, Daqian, 2022. "The effects of an environmental accountability system on local environmental governance and firms’ emissions," Economic Systems, Elsevier, vol. 46(3).
    • Handle: RePEc:eee:ecosys:v:46:y:2022:i:3:s0939362522000498
    DOI: 10.1016/j.ecosys.2022.100987
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    References listed on IDEAS

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    Cited by:

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