The impact of insurance on pollution emissions: Evidence from China's environmental pollution liability insurance

The disaster risks caused by environmental pollution can be effectively reduced by insurance, however, how insurance affects pollution emissions remains unexplored in existing literature. This study aims to investigate the impacts of Environmental Pollution Liability Insurance (EPLI) implemented in China on pollution emissions by adopting difference-in-differences approach. Using the data at the prefecture-city level from 2003 to 2015, we find that EPLI has a significant inhibitory effect on pollution emissions, and the effect is stronger with the increasing numbers of insured enterprises and insurance premiums. Further analysis exploring channels suggests that EPLI can strengthen public supervision by compensating the public for economic losses caused by pollution, and improve self-discipline by increasing economic punishment for enterprises pollution. Our findings provide a new rationale for environmental administrators to regulate industrial polluters.