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Pricing industrial pollution in China : an econometric analysis of the levy system

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  • Hua Wang
  • Wheeler, David

Abstract

The authors analyze China's experience with the water pollution levy, an emissions charge system that covers hundreds of thousands of factories. The levy experience has not been studied systematically, but anecdotal critiques have suggested that the system is arbitrarilyadministered and ineffective in controlling pollution. Enforcement is thought to vary widely, so that factories in different regions face different penalties for polluting. And it is widely believed that the levy provides little incentive to control pollution because official rates are below marginal abatement costs. The authors test the conventional critique of the levy system using solid new province-level data for 1987-93. Their results suggest that the water pollution levy system is neither arbitrary nor ineffective. During 1987-93, rapid development in many provinces led to sharp increases in the effective rate. Their results also suggest that the emissions intensity of Chinese industry was highly responsive to those increases, because marginal abatement costs were often lower than levy rates. And from 1987 to 1993, provincial pollution intensities fell at a median rate of 50 percent, and total discharges at a median rate of 22 percent. The results suggest several lessons for regulators in developing countries: 1) local enforcement of national standards will determine the effective price of pollution in each area; 2) the locally enforced price of pollution rises with industrial development; and 3) early in the regulatory process, industrial emissions intensity is highly responsive to changes in the price of pollution, mainly because marginal costs are often quite low in low to medium abatement ranges. In China, provincial adjustments of effective levy rates and other regulatory instruments have been sufficient to induce sharp declines in emissions intensity and reductions in total emissions from registered factories during a period of rapid industrial growth.

Suggested Citation

  • Hua Wang & Wheeler, David, 1996. "Pricing industrial pollution in China : an econometric analysis of the levy system," Policy Research Working Paper Series 1644, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1644
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    Citations

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    Cited by:

    1. Chen, Qiu & Maung, Min & Shi, Yulin & Wilson, Craig, 2014. "Foreign direct investment concessions and environmental levies in China," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 241-250.
    2. Sedigh, Golnaz, 2008. "Do environmental regulations reduce greenhouse gas emissions? A study on Canadian industries," MPRA Paper 10003, University Library of Munich, Germany.
    3. Dean, Judith M. & Lovely, Mary E. & Wang, Hua, 2004. "Foreign Direct Investment and Pollution Havens: Evaluating the Evidence from China," Working Papers 15854, United States International Trade Commission, Office of Economics.
    4. Susmita Dasgupta & Benoit Laplante & Hua Wang & David Wheeler, 2002. "Confronting the Environmental Kuznets Curve," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 147-168, Winter.
    5. Hua Wang & Wheeler, David, 2000. "Endogenous enforcement and effectiveness of China's pollution levy system," Policy Research Working Paper Series 2336, The World Bank.
    6. Hettige, Hemamala & Mani, Muthukumara & Wheeler, David, 2000. "Industrial pollution in economic development: the environmental Kuznets curve revisited," Journal of Development Economics, Elsevier, vol. 62(2), pages 445-476, August.
    7. Cheng, Jinhua & Dai, Sheng & Ye, Xinyue, 2016. "Spatiotemporal heterogeneity of industrial pollution in China," China Economic Review, Elsevier, vol. 40(C), pages 179-191.
    8. Hua Wang & Nlandu Mamingi & Benoit Laplante & Susmita Dasgupta, 2003. "Incomplete Enforcement of Pollution Regulation: Bargaining Power of Chinese Factories," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 24(3), pages 245-262, March.
    9. Stavins, Robert N., 2003. "Experience with market-based environmental policy instruments," Handbook of Environmental Economics,in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 1, chapter 9, pages 355-435 Elsevier.
    10. He, Jie, 2006. "Pollution haven hypothesis and environmental impacts of foreign direct investment: The case of industrial emission of sulfur dioxide (SO2) in Chinese provinces," Ecological Economics, Elsevier, vol. 60(1), pages 228-245, November.
    11. Yinger Zheng & Haixia Zheng & Xinyue Ye, 2016. "Using Machine Learning in Environmental Tax Reform Assessment for Sustainable Development: A Case Study of Hubei Province, China," Sustainability, MDPI, Open Access Journal, vol. 8(11), pages 1-20, November.
    12. Hettige, Hemamala & Mani, Muthukumara & Wheeler, David, 1998. "Industrial pollution in economic development: Kuznets revisited," Policy Research Working Paper Series 1876, The World Bank.
    13. Wang,Hua*Ming Chen, 1999. "How the Chinese system of charges and subsidies affects pollution control efforts by China's top industrial polluters," Policy Research Working Paper Series 2198, The World Bank.
    14. Sterner, Thomas & Hoglund, Lena, 2000. "Output-Based Refunding of Emission Payments: Theory, Distribution of Costs, and International Experience," Discussion Papers dp-00-29, Resources For the Future.
    15. Hua Wang, 2000. "Pollution charges, community pressure, and abatement cost of industrial pollution in China," Policy Research Working Paper Series 2337, The World Bank.
    16. Yun Ping, 1998. "The Pollution Charge System in China: An Economic Incentive?," EEPSEA Research Report rr1998092, Economy and Environment Program for Southeast Asia (EEPSEA), revised Sep 1998.
    17. TAGUCHI Hiroyuki & MUROFUSHI Harutaka, 2009. "Environmental Latecomer's Effects in Chinese Provinces," ESRI Discussion paper series 212, Economic and Social Research Institute (ESRI).
    18. Clive Harris, 2003. "Private Participation in Infrastructure in Developing Countries : Trends, Impacts, and Policy Lessons," World Bank Publications, The World Bank, number 15124, June.
    19. repec:eee:resene:v:50:y:2017:i:c:p:105-123 is not listed on IDEAS
    20. Afsah, Shakeb & Laplante, Benoit & Wheeler, David, 1996. "Controlling industrial pollution : a new paradigm," Policy Research Working Paper Series 1672, The World Bank.
    21. Dasgupta, Susmita & Huq, Mainul & Wheeler, David, 1997. "Bending the rules : discretionary pollution control in China," Policy Research Working Paper Series 1761, The World Bank.
    22. Dasgupta, Susmita & Laplante, Benoit & Namingi, Nlandu & Hua Wang, 2000. "Industrial environmental performance in China - the impact of inspections," Policy Research Working Paper Series 2285, The World Bank.
    23. Wang, Hua, 2002. "Pollution regulation and abatement efforts: evidence from China," Ecological Economics, Elsevier, vol. 41(1), pages 85-94, April.
    24. Dasgupta, Susmita & Laplante, Benoit & Mamingi, Nlandu & Wang, Hua, 2001. "Inspections, pollution prices, and environmental performance: evidence from China," Ecological Economics, Elsevier, vol. 36(3), pages 487-498, March.
    25. Lan, Jing & Munro, Alistair & Liu, Zhen, 2017. "Environmental regulatory stringency and the market for abatement goods and services in China," Resource and Energy Economics, Elsevier, vol. 50(C), pages 105-123.

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