This thesis is a collection of three essays in empirical environmental economics in China.

The first chapter investigates how transboundary water quality regulation can cause misaligned incentives to China’s local governments and redistribute pollution. Using a spatial regression discontinuity design, we find emissions will be reduced in places where water quality monitors can accurately measure environmental quality, and pollution will move to areas where environmental quality cannot be accurately measured. Using the data on land supply and the establishment of Economic Development Zones, we show that local governments play a critical role in shaping the industry structure and redistributing polluting activities. These findings are consistent with a multi-task model in which the cent...[ Read more ]

This thesis is a collection of three essays in empirical environmental economics in China.

The first chapter investigates how transboundary water quality regulation can cause misaligned incentives to China’s local governments and redistribute pollution. Using a spatial regression discontinuity design, we find emissions will be reduced in places where water quality monitors can accurately measure environmental quality, and pollution will move to areas where environmental quality cannot be accurately measured. Using the data on land supply and the establishment of Economic Development Zones, we show that local governments play a critical role in shaping the industry structure and redistributing polluting activities. These findings are consistent with a multi-task model in which the central government cares both GDP and the environment, but environmental quality can only be partially measured.

The second chapter studies the changes in air pollution after China establishes a national carbon market and discusses the implications. As the emissions of greenhouse gases and other pollutants are highly correlated, climate policy neglecting this relationship can cause several welfare losses. We use the directional distance function approach to quantify the province-level marginal abatement cost of carbon emissions from 2000 to 2017. Exploiting the carbon-pollutant relationships in different provinces, we simulate carbon market trading under various policy scenarios, discuss spatial changes in carbon emissions, and predict the redistribution of air pollutions across provinces. We highlight the importance of careful climate policy design when multiple externalities co-exist.

The third chapter examines how economic shocks induced by trade liberalization affect China’s domestic polluting activities from 1998 to 2008. We construct regional tariff changes for more than 2500 China’s counties from the sector-specific import tariff and initial local labor share in each sector. We find fewer pollutants are emitted in regions facing lower production cost (caused by tariff cuts on inputs) and less competitive market (caused by tariff increase on outputs). We find trade liberalization mainly contributes to the composition effects across polluting and non-polluting activities. Tariff cuts on input help promote non-polluting sectors and crowd out polluting activities. When the market becomes more competitive, polluting industries will take more market share and expand emissions.