Intra-firm pollution leakage and redistribution of pollution exposure: Evidence from coal-regulated plants in China

This paper examines the intra-firm pollution leakage and its distributional consequences on ambient PM2.5 induced by the Top 1000 energy conservation program on industrial plants in China. Using a combined data on plant-level pollution emissions, ambient PM2.5 concentration, and business ownership networks from 2001 to 2010, we identify the causal effects of the program on air pollution emissions by the plants and PM2.5 concentration in local neighborhoods affected by the emissions using a difference-in-differences strategy. The paper has two main findings. First, regulation-induced production transfer results in a leakage of 27 % in sulfur dioxide and coarse dust emissions from program-regulated plants to their affiliate plants. Second, the leakage shifts up PM2.5 near affiliate plants and results in a re-distribution of PM2.5 exposure towards socially disadvantaged rural neighborhoods where the affiliates are located in. These neighborhoods exhibit greater vulnerability due to less developed medical services and low health insurance coverage. Back-of-the-envelope calculations indicate that the leakage in pollution leads to a disproportionately higher leakage in health costs.