Promotion Incentives and Environmental Regulation: Evidence from China’s Environmental One-Vote Veto Evaluation Regime

This paper applies a difference-in-differences approach to examine the effectiveness of China’s One-Vote Veto environmental regulation regime, which links pollution reduction targets with local officials’ promotion. Using a rich set of data for 286 Chinese cities, we show that the new political incentive induced significant tradeoff between economic growth and environmental protection. The regime shifts significantly reduced industrial SO2 emissions; however, the environmental improvement was limited only to the reduction of the targeted pollutants that are linked to performance evaluation. Firm-level evidence shows that emission reduction was mainly achieved by reducing new polluting production activities, increasing pollution abatement capacity and improving abatement performance. It is also found that compliance with emissions reduction targets indeed increases the promotion chances of local officials.