Can the Environmental Credit Evaluation Policy Alleviate the Overcapacity of Heavily Polluting Enterprises?

Chuanwang Sun and Jiahui Chen

China & World Economy, 2025, vol. 33, issue 1, 162-194

Abstract: Addressing pollution caused by economic development, especially the overcapacity of polluting enterprises, is crucial for promoting sustainable economic growth. Targeted environmental policies are essential for strengthening environmental constraints on enterprises and enhancing the effectiveness of regulatory instruments. This study focused on the Environmental Credit Evaluation policy by examining its potential to improve capacity utilization and assessing its broader impact on heavily polluting enterprises. It constructed a time‐varying difference‐in‐difference‐in‐differences model using panel data from 965 industrial enterprises from 2009 to 2019. The findings reveal that, in comparison with their non‐heavily polluting counterparts, heavily polluting enterprises subject to the policy demonstrated significant improvements in capacity utilization. Heavily polluting enterprises that experienced a substantial increase in financing costs also exhibited a marked reduction in inefficient investment, without negatively affecting innovation investments or output.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:bla:chinae:v:33:y:2025:i:1:p:162-194

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