Environmental Policy and Mill Level Efficiency

Peer Reviewed
1 January 2006

Understanding relationship between environmental protection and economic development is crucial to form practical environmental policy. At micro level, implementation of environmental regulations often causes production mills adjustment of technology which might leads to change of productive efficiency and cost, which, in turn, determine effort level of mills and even local government in pollution control.

Using a stochastic frontier production model and a set of survey data on 126 paper mills from six provinces of China, we measure the technical efficiency changes and analyze the determinants of efficiency. In particular, we examine impact of environmental policy on paper mills’ efficiency, using an indicator of environmental policy—the levy ratio of COD. We also estimate a simultaneous-equation model in which the levy rate and emission are jointly determined.

The results indicate that there have been efficiency improvements during 1999-2003, when enforcement of environmental regulations have been tightened. The impacts, nevertheless, are different for different types of mills. We also find the levy ratio, which is influenced by both the local social and economic conditions and the characters of paper mills, such as scale, has strong impact on the abatement of the pollutant-COD. Additionally, paper mills’ technical efficiency has positive effect on the reduction of the emission intensity of the pollutant-COD. These results lead a set of implications pertinent to policy improvement.

Sustainable Development Goals

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Publication | 1 February 2006