Do command‐and‐control environmental regulations realize the win‐win of “pollution reduction” and “efficiency improvement” for enterprises? Evidence from China

Abstract We use the DID method to estimate whether the binding pollution control policy can achieve both “pollution reduction” and “efficiency enhancement” for industrial enterprises after implementing this command‐and‐control environmental regulation of the eleventh Five‐Year Plan in China. We also analyze its influence mechanism in detail. It has been shown that (1) Constrained by binding pollution control policies, enterprises could reduce their pollutant emissions but simultaneously suppress their total factor productivity (TFP), which indicates that command‐and‐control environmental regulations do not achieve both “pollution reduction” and “efficiency gains” for firms. (2) The mechanism analysis shows that under the constraint of the binding pollution control policy, enterprises increase the pollution treatment at the front end of production, such as investment in environmental protection facilities, and adjust the production schedule, such as pollution treatment at the end of production. These pollution treatment measures reduce pollutant emissions while bringing “compliance costs” to enterprises. However, the “innovation compensation effect” fails to compensate for the “compliance cost” brought by pollution control. (3) Further study finds that the binding pollution control policy effectively reduces the pollutant emissions of enterprises with low financing constraints.