Regional Differentials and Policy Effect of Pollution Levy System in China

Abstract

Chinese “pollution levy system” has attracted international attention as an example of market based instruments for environmental policy in developing countries. On the other hand, this system does not give an incentive to the polluter to reduce the pollutant. However, “pollution levy system” has been changed to the environmental tax by the system reform in 1990s. Moreover, as the amounts of pollution decreases, the actual condition of the environmental quality may improve.

This research analyzes the policy effect, based on this change in “pollution levy system”. We analyze the effect of “pollution levy system,” in line with “effective pollution levy” index, and also for the regional differentials. The targeted pollutants are SOx, Dust, and COD. We explain the relationship between “effective pollution levy” and the pollution intensity by using multiple regression analysis of the Chinese regional data.

We get the results from the cross-section analysis, indicating that pollution intensity was low in the regions with higher rate for “effective pollution levy”. This analysis, by adapting panel data of eight years, proves that pollution intensity declines with the rise in “effective pollution levy”. It becomes clear from the above analysis that the active use of “pollution levy system” brings environmental improvement.