Low-carbon governance, fiscal decentralization and sulfur dioxide emissions: Evidence from a quasi-experiment with Chinese heavy pollution enterprises

Abstract This paper investigates the effects of enterprise environmental governance under low-carbon pilot policies in China with a difference in differences (DID) design. In examining the development of these policies, we focus on exploring their effects on sulfur dioxide emissions of heavily polluting enterprises based on prefectural city- and firm-level data from 2003-2014. Overall, the policies significantly increased enterprise SO2 emissions, and the underlying reason being that investments in CO2 control crowded out investment in SO2 control in enterprises in low-carbon pilot regions. We also find that the implementation of low-carbon pilot policies resulted in greater SO2 emissions from state-owned enterprises and enterprises in western regions than from non-state-owned enterprises and those in eastern regions. It is further found that fiscal decentralization and the associated mediating effect of market segmentation promote enterprises' CO2 control and inhibit their SO2 control. This study helps us re-examine the overall environmental effects of low-carbon policies and has implications for the revision and improvement of environmental governance policies in developing countries.