Does one size fit all? An examination of China’s environmental regulation and firm heterogeneity in cement industry

This project tackles the problem of distributional impacts of environmental regulations on producers. We decompose the sources of firm heterogeneity into cost structure and market power in the context of a developing economy. Focusing on the cement industry in China, this project aims 1) to document the heterogeneous emission-reduction performances; 2) to recover the firm-level cost structure of production and pollution abatement; and thereby 3) to simulate welfare implications for counterfactual policies. Our method exploits recent environmental policy shocks and associated variations at the firm level production and emission decisions to 1) apply reduced-form analysis to document heterogeneity of cement firms; 2) build a structural model to recover firm-specific cost structures. We will compile datasets of firm-level information on production and emission of all cement firms from China Cement Association and China Environmental Statistics Database. Possible outcomes include one technical report, one academic paper, and one policy brief.