Green Growth Strategies: Exploring the Role of Environmental Taxation in Promoting Sustainable Development of Heavily Polluting Enterprises

Abstract

In developing countries, rapid industrial growth frequently results in companies with high pollution levels, which in turn exhibit characteristics such as elevated emissions, increased energy consumption and overcapacity. In order to promote sustainable development among these heavily polluting firms, it is essential to implement a system of incentives and penalties that encourages environmentally responsible behaviour. China's environmental protection tax has replaced the previous pollution discharge fee (PDF) system. This tax aims to guide enterprises towards continuous adjustments and improvements in their production methods, increased investments in green technology, adoption of environmentally friendly production methods, reduced pollutant emissions and promotion of high-quality development. This chapter analyses how China's Environmental Protection Tax Law, enforced in 2018, affects the sustainable development capabilities of A-share listed companies in China. We utilise a difference-in-differences (DiD) model and measure total factor productivity (TFP) to quantify the impact of the tax law on these enterprises. TFP is a key indicator used to measure the effectiveness of resources utilised by enterprises in the production process. Our empirical analysis provides compelling evidence that the implementation of environmental protection taxes has significantly enhanced the TFP of heavily polluting enterprises. Importantly, the impact of these taxes is more pronounced for state-owned enterprises (SOEs) in comparison to their private counterparts in this sector. These findings offer valuable insights for policymakers in developing countries as they consider the design of environmental protection tax systems and supportive measures to promote sustainable development of companies with significant environmental impacts.

Citation

Zhai, N. and Zhang, S.R. (2024), "Green Growth Strategies: Exploring the Role of Environmental Taxation in Promoting Sustainable Development of Heavily Polluting Enterprises", Crowther, D. and Seifi, S. (Ed.) Social Responsibility, Technology and AI (Developments in Corporate Governance and Responsibility, Vol. 23), Emerald Publishing Limited, Leeds, pp. 93-109. https://doi.org/10.1108/S2043-052320240000023005