How Polluting Industries React to Ambient Water Quality: Seven River Basins in China

Abstract

Water pollution in China has expanded from regions to river basins. It is of great significance to study the behaviors of regulated subjects from the perspective of river basins for protecting the water environment and improving the effectiveness of environmental regulations. This paper constructed a basin spatial regression design to discuss the governance effect and economic effect of water pollution from industry in relation to the central environmental protection goal of China, as well as the response and strategy of local government. Considering the validity of the data, the annual average chemical oxygen demand (COD) concentration of each monitoring station was adopted as the ambient water quality index, and there was direct evidence that the ambient water quality index influenced water-polluting industries. We found that, if the downstream COD concentration in the last year rose by 1 mg/L, the water-polluting industries reduced their pollution and output value by 1.9% and 0.2%, respectively. After using the upstream COD concentration as the tool variable, the result was still robust. However, the results of local government’s two strategies, which we can call regulatory constraint force and fiscal incentive force, were opposites. Specifically, the governance effect of polluting industries under regulatory constraints was more significant, while fiscal incentives encourage water-polluting industries to create more value. In addition, we estimated the impact of ambient water quality on water-polluting industries in the Yangtze River Basin and the Yellow River Basin, and revealed that the governance effect exceeded the average value of seven river basins. After further distinguishing the relative upstream cities and relative downstream cities, the results show that the response of relative upstream cities to water quality was significantly higher, and the gap between regions expanded further after 2013.