Effect of Environmental Courts on Pollution Abatement: A Spatial Difference-in-Differences Analysis

Effect of Environmental Courts on Pollution Abatement: A Spatial Difference-in-Differences Analysis

1. Introduction

Escalating levels of pollution have emerged as a grave issue that constrains China’s sustainable development. A report by the Ministry of Ecology and Environment of China indicated that, in 2022, over a third of China’s 339 prefecture-level cities breached air quality standards by 37.2 percent [1]. In addition, haze pollution continues to adversely affect the health and well-being of the Chinese population [2]. The Chinese government has implemented various environmental control measures, including an environmental regulation system that employs governmental administrative punishment [3,4] and local administrative intervention, such as the automobile traffic restriction policy [5]. These measures serve as the primary institutional tool for pollution control and play a vital role in preventing the continuous deterioration of the environment. China’s market-oriented economic reform has led to the adoption of market-oriented measures, such as emission trading and emission fee collection, which have become essential means for pollution control and have been effective in reducing pollutant emissions [6,7]. However, pollution in China has not been fundamentally reversed, with existing governance efforts only resulting in temporary environmental improvement [8,9]. Environmental protection remains trapped in “campaign-style enforcement”, and often results in a rebound, as seen in examples such as “APEC Blue” and “Political Blue” [10,11]. This highlights the persisting lack of pollution control measures in China and emphasizes the need for the establishment of the rule of law to address this issue [12].

The construction of environmental rule of law can be broadly categorized into two aspects: the development of regulations and the strengthening of judicial capacity.

Judicial capacity is a prerequisite to ensuring the correct and effective implementation of laws and regulations [13]. In several cases, numerous legal provisions have been formulated, but due to the lag in building judicial capacity, these laws and regulations have not played their due role. Since the promulgation of the Environmental Protection Law of the People’s Republic of China in 1989, hundreds of laws and regulations related to environmental protection have been enacted by both national and provincial legislative bodies [14], providing a legal foundation for pollution control measures. Regrettably, the current state of environmental courts and enforcement in China is inadequate. Since 1998, annual environmental disputes in China have increased by over 20%, and since 2005, by over 30% [15]. In 2016, environmental protection authorities received over 100,000 cases involving pollution and ecological damage, as reported in China’s Environment Yearbook 2017. In contrast, during the same period, the people’s courts at all levels concluded 13,895 environmental and resource cases, as reported in the Environmental and Resources Adjudication in China (2016–2017). Despite the increasing intensity of pollution infringement disputes, environmental justice in China remains inefficient, with inadequate capacity to handle environmental infringement cases in line with regulations, resulting in poor enforcement outcomes.
An environmental court system was established in the 1950s, which defined and adjudicated environmental violations through a specific environmental and resource-focused adjudication body and provided a judicial approach to resolving environmental disputes [16,17]. In 2007, China initiated an experimental environmental court in Guiyang, followed by several regions that established environmental courts at all levels throughout the country, making this mechanism an essential element in promoting environmental justice to mitigate environmental pollution. However, there is a diversity of opinions regarding these actions, and scholars primarily debate their legality and legitimacy from a judicial standpoint [18,19]. Consequently, rigorous textual analysis of empirical data is urgently necessary. Through empirical evidence, this paper seeks to systematically evaluate the impact of environmental courts on pollution abatement at the city level in China.
China’s regional environmental governance exhibits prominent territorialism characteristics. The absence of a formal system in territorialism’s administrative environmental governance system often results in fragmentation among local governments, leading to low pollution control efficiency. Moreover, pollution spillover can lead to ambiguity in regional environmental governance responsibilities, causing local governments to become free riders in pollution governance, thereby increasing the difficulty of pollution control [20,21]. Independent environmental governance has proven insufficient in improving overall environmental outcomes. Effective pollution control in China can only be achieved by breaking down administrative barriers and implementing cross-domain collaborative governance. Environmental justice is a critical measure and the final safeguard for protecting the environment. China’s environmental courts have been given the right to centralize jurisdiction over cases concerning environmental resources across regions, which mitigates the territorial characteristics of environmental governance. Thus, the implementation of environmental justice in China offers a novel avenue for promoting collaborative pollution control at the regional level. Additionally, the legally binding nature of judicial results obligates the government to enhance environmental law enforcement and disrupt the “collusion between government and business” that hinders pollution control efforts. Central policymakers have included pollution control in the performance assessment system, hence local governments will compete in terms of environmental regulation [22]. Economic activities are often affected by neighbourhood effects [23], in which significant economic and social reforms in one region will inevitably spill over to neighbouring regions. The reform of environmental justice, as a new environmental governance measure, will also have similar spillover effects. Although there is a substantial body of literature on the impact of environmental policies on pollution control, few studies have considered this impact in depth.

This paper seeks to establish a quasi-experiment using the policy experiment initiated by Chinese environmental courts. The primary objective is to employ the difference-in-differences (DID) method, discerning the causal impact of reinforcing environmental justice on pollution control. However, the presence of significant neighbourhood effects from environmental courts may influence both the cities with environmental courts and adjacent cities without environmental courts, violating the DID method’s assumption of individual intervention. To address this challenge, we incorporated the neighbourhood effects of a spatial meteorological technology control policy. Subsequently, a spatial difference-in-differences (SDID) model was constructed to accurately identify the effect of environmental courts on pollution abatement. To further enrich our understanding, this paper explores heterogeneity and mechanisms by leveraging multiple channels and original databases, collecting panel data from 285 prefecture-level cities and firms in China, spanning from 2006 to 2022.

This paper contributes on several fronts. First, by utilizing data from prefecture-level cities in China, it establishes a quasi-natural experiment through the implementation of environmental courts. It assesses the impact of environmental courts on pollution abatement in China and employs mathematical models to probe the underlying mechanisms. This empirical analysis offers valuable insights for resolving contentious issues arising from the practical implementation of environmental courts in China. Second, recognizing the proximity effect of policy implementation, this paper employs the SDID model. This model effectively distinguishes the impact of environmental courts on pollution abatement within a region and in neighbouring areas. This enhances the depth of our understanding regarding the operational effects of environmental courts, presenting innovative methodologies and empirical insights for the quantitative analysis of policy effects. Third, we verified the mechanism of environmental courts on promoting regional pollution control from the perspectives of the government, the public, and firms, clarifying the pathways through which environmental judicial enforcement functions and providing valuable supplementary insights into the mechanisms of environmental judicial effectiveness.

The remainder of this paper is constructed as follows. Section 2 provides an overview of the institutional context that led to the establishment of the environmental court. In Section 3, we establish a theoretical model of environmental justice affecting pollution and formulate our research hypotheses. Section 4 explains the methodology, data sources and variables. Section 5 presents the empirical results. The final section concludes with policy implications.

2. Institutional Background

The complex nature of pollution involves numerous stakeholders in the handling process. However, for a prolonged period, China’s environmental cases have been managed using a conventional jurisdiction method comprising criminal, civil, and administrative courts, respectively [24]. This simplistic classification approach fails to adequately address the criminal, civil, and administrative aspects of environmental cases, leading to a significant reduction in case efficiency and compromising the integrity of environmental laws and regulations. The absence of specialized environmental justice institutions has hindered the practical effectiveness of existing environmental protection laws and regulations. The inadequacy of the environmental justice system has significantly undermined the role of the rule of law in pollution control.
The establishment of environmental courts marks a pivotal advancement in specialized environmental justice, aligning with the evolving global justice landscape [25]. The world witnessed the inception of the first environmental court, the Land and Environment Court, in New South Wales, Australia, in September 1980 [26]. It was the first court to establish a professional team dedicated to environmental justice, enabling timely and accurate resolution of environmental disputes, improving judicial mediation efficiency, and reducing the costs incurred by litigants seeking environmental justice through judicial means. This model has inspired other regions and countries, such as Vermont, the United States (1990), and New Zealand (1991), to establish their own environmental courts [27]. Currently, there are more than 40 countries with established environmental courts [28].

Environmental rule of law has become a crucial means for all countries to protect the ecological environment. Compared to other regulatory means, environmental rule of law has more potent binding force and deterrent power. In November 2007, China established its first environmental courts, the Environmental Protection Tribunal of the Intermediate People’s Court of Guiyang, and the Environmental Protection Tribunal of the People’s Court of Qingzhen City, simultaneously. The Guiyang City Intermediate People’s Court subsequently released “designated jurisdiction court cases accepted by the environmental protection scope of the provisions concerning the trial of the destruction of environmental resources” and other guidance documents. These documents specify that the two levels of courts are responsible for the cross-regional trial-related scope of environmental concerns in criminal, civil, and administrative first-instance cases related to environmental issues, as well as relevant enforcement cases. China took the lead in consolidating three categories of environmental cases into one trial and exercising centralized and exclusive jurisdiction over them. Consequently, the proliferation of pilot environmental courts expanded nationwide, significantly contributing to the promotion of the rule of law in China’s environmental governance. The formalization of the environmental court system in China took place in July 2014, marked by the announcement from the Supreme People’s Court of the People’s Republic of China regarding the establishment of the Environmental and Resources Tribunal.

3. Theoretical Model and Hypothesis

Special courts and tribunals have been found to be more efficient in addressing complex social problems, and judicial specialization serves as a theoretical summary of this effective approach [29]. Environmental elements, such as water and atmosphere, are not bound by administrative boundaries and can easily move across regions, resulting in significant spillover effects of pollution [30]. The resolution of environmental problems necessitates collaboration between adjacent administrative regions. China’s environmental justice system promotes a centralized jurisdiction mechanism that uses an ecosystem or ecological functional area as a unit to exercise jurisdiction across administrative boundaries. For instance, the superior people’s courts in Hubei, Guangdong, Hebei, Qinghai, and Xinjiang have empowered the intermediate people’s courts under their jurisdiction to exercise centralized authority over environmental civil public interest litigation cases spanning administrative boundaries. Since 26 October 2017, the No. 4 Intermediate People’s Court of Beijing has been handling administrative appeals for environmental protection cases originally heard by the Tianjin Railway Court. The establishment of environmental courts is anticipated to lead to a reduction in pollution levels within the region and an improvement in environmental quality in neighbouring areas. To comprehensively grasp the impact of the establishment of an environmental court on pollution control in neighbouring areas, this paper aims to develop an intergovernmental evolutionary game model and a firm-level decision-making model for a detailed elaboration. To analyse the influence mechanism of local government competition on environmental pollution, this paper refers to Smith’s approach [31], which provides an in-depth discussion on the combination of environmental governance strategies that two local governments may adopt. The definitions of symbols involved in the process of model construction are described in Appendix A, Table A1.

Assuming there are two local governments, referred to as a and b, engaging in a repeated random game. After implementing (or not) environmental governance policies, the reduction (or increase) of regional pollutant emission of a and b is presented by R a ( I a ) and R b ( I b ), respectively. Pollution control costs are represented by C a and C b , respectively. The probabilities of governments a and b implementing environmental governance policies are n and m, respectively. Assume the externalities from government a to government b and vice versa are represented by α 1 and α 2 , respectively, and a reward M is given for implementing environmental governance policies, while a punishment F is given for not implementing them, and F > M. σ is the weight of environmental performance in performance evaluation ( 0 < σ < 1 ). Based on the above assumptions, the dynamic equation for the environmental governance behaviour of government a and government b is as follows:

The expected revenues ( U 1 and U 2 ) for government a’s implementation of environmental governance policies are:

U 1 = m C a + σ R a + α 2 R b + 1 m C a + σ R a α 2 I b + M

U 2 = m σ I a + α 2 R b F + 1 m σ I a α 2 I b

The average return U ¯ of government a is:

U ¯ = n U 1 + 1 n U 2

The expected revenues ( V 1 and V 2 ) of government b’s implementation of environmental governance are:

V 1 = n C a + σ R b + α 1 R a + 1 n C b + σ R b α 1 I a + M

V 2 = n σ I b + α 1 R a F + 1 n σ I b α 1 I a

The average return V ¯ government b is:

V ¯ = m V 1 + 1 m V 2

The framework of evolutionary game theory requires that the dynamic equations for the implementation of governance policies by governments a and b to choose to implement environmental governance are as follows:

Q n , m = d n d t = n 1 n U 1 U 2 = n 1 n σ R a + I a + 1 m M + m F C a

H n , m = d m d t = m 1 m V 1 V 2 = m 1 m σ R b + I b + 1 n M + n F C b

Let d n d t , d m d t equal 0, then the local equilibrium point of the replicator dynamic equation is (0, 0), (1, 1), (0, 1), (1, 0), and ( C b M σ R b + I b F M , C a M σ R a + I a F M ). The five local equilibrium points derived from the dynamic equation do not necessarily represent evolutionarily stable strategies of the system. To examine the local stability of the Jacobian matrix (J) based on Friedman’s theory [32], two conditions must be simultaneously satisfied: t r J < 0 and d e t J > 0 , so the evolutionarily stable strategy of the system can be determined. At the point ( C b M σ R b + I b F M , C a M σ R a + I a F M ) is not satisfied t r J < 0 . Therefore, this equilibrium point is not an evolutionarily stable strategy for the system.
According to the replicator dynamic equation, when n > C b M σ R b + I b F M , m = 1 is stable; when m > C a M σ R a + I a F M , n = 1 is stable. This implies that when the local government is inclined to implement environmental governance policies, neighbouring local governments will gradually adopt the same strategy. Establishing environmental courts will allow for a stricter enforcement of environmental governance policies, ultimately promoting environmental policy compliance. As the weight of environmental governance increases in government performance assessment, local governments will prioritize the environment, leading to a “race to the top” in competitive strategies, resulting in an outcome of (1,1). Therefore, we propose the following hypothesis:

Hypothesis 1.

Establishing an environmental court will improve the government’s environmental control and encourage a “race to the top” among governments to achieve better environmental control, ultimately promoting pollution control in both the local and nearby areas.

The establishment of environmental courts provides an efficient judicial mechanism for the public to protect their rights and participate in environmental conservation. This encourages public participation in environmental protection and reveals firms’ pollution behaviour. When an environmental court identifies an environmental violation by a firm, it will penalize the illegal behaviour. In today’s fast-paced information environment, punitive judgements produce an announcement effect, leading residents to reduce their consumption of the firm’s products [33]. This paper tests the influence of environmental courts on the pollution control behaviour of firms by improving public participation in environmental protection and clarifies the mechanism of the establishment of environmental courts for pollution control in a region and neighbouring areas, based on the theoretical framework of Campa [34].
Assume that firms can produce either a cleaner version ( e c ) or a less clean version ( e d ), and corresponding production costs are c c and c d , respectively, where c c > c d . The demand from residents for the product is y, derived from both the local market ( y l ) and other markets ( y n ). Residents derive utility ϕ y l from the job opportunities provided by firms, subject to the following properties: ϕ y l , ϕ y l . Simultaneously, residents are subject to health damage and environmental loss caused by the pollution discharge from firms (h), which depends on production technology and yield and satisfies: h y l , e c , h y l , e d = h ¯ y l > 0 , h ¯ y l > 0 , h ¯ y l > 0 . Let the initial endowment of residents be S. If the firms’ output is 0, their marginal revenue exceeds the marginal loss, that is ϕ 0 > h 0 . According to the cost–benefit principle, firms choose between using a cleaner or less clean production technology, which corresponds to different levels of pollution emissions. The consumption preferences of residents are influenced by the production technology used by firms [35]. If residents are aware that a firm produces using less clean technology, they will reduce their consumption of the firm’s goods [36]. However, in general, only a few residents in the vicinity of the firm are aware of its production technology, and the impact of this on the overall market is negligible. The establishment of an environmental court provides a new avenue for local residents to protect their environment. The court’s verdict can attract more attention and affect a firm’s market share. π denotes the probability of a firm being sued by the public for environmental infringement. The further a firm is from the environmental court, the lower π will be. This is because the costs of litigation are higher for firms located further away from the court. Despite this, the Supreme Court of the People’s Republic of China has promoted the establishment of a centralized jurisdiction system to address environmental legal cases across administrative regions. The conditions for maximizing resident utility are as follows:

R y l , y n m a x = E y l + y n + ϕ y l h y l , e j s . t .     y l + y n S

Residents allocate their initial wealth S to purchase commodities from both local and other domestic markets to maximize their utility. Since the initial wealth S is given, we can determine y l once we have determined y n . For y l , we arrive at the maximum value of ϕ y l h y l , e j , where p r = 1 indicates that the firm is being sued by the environmental court, while p r = 0 means otherwise. Residents can determine the production technology adopted by firms through the environmental court trial results, and subsequently make informed consumption choices.

y l * = a r g m a x ϕ y l 1 ψ e c | p r h ¯ y l

where ψ e c | p r represents the probability that a firm chooses cleaner production technology and meets the following conditions:

ψ e c | p r = ψ y l ¯ y l ¯ π c c c d = γ i f   p r = 0 0 i f   p r = 1  

where y l ¯ = a r g m a x ϕ y l 1 γ h ¯ y l and y l ¯ = a r g m a x ϕ y l h ¯ y l . Firms face a cost–benefit analysis when deciding whether to adopt cleaner production technology. If the cost of a potential lawsuit resulting from less clean production technology exceeds the cost of transitioning to cleaner production technology, the firm will choose the latter; otherwise, it will continue polluting. Therefore, the consumers’ optimal choice is:

y l * = y l ¯     i f   p r = 0   y l ¯     i f   p r = 1  

The expected earnings of firms that adopt cleaner technology and less clean technology are, respectively: R e c = R c = y l ¯ c c and R e d = R d = 1 π y l ¯ c d   + π y l ¯ c d .

According to the cost–benefit principle, the conditions for firms to choose cleaner technology production are as follows: R c > R d , which is y l ¯ y l ¯   π > c c c d . Thus, the production technology selection strategy of a firm can be expressed as:

e j = e c     i f     y l ¯ y l ¯   π > c c c d e d     o t h e r w i s e

As is evident from Equation (13), as the value of π increases, firms are more inclined towards utilizing cleaner technology to lower their industrial pollution emissions. Environmental courts can handle environmental cases across administrative regions; consequently, firms situated in other regions may also face the impacts of the court’s establishment. However, the probability of being sued decreases with the increasing distance from the court, mainly due to the associated litigation costs. Therefore, the pollution control effect of an environmental court is more significant in the local region compared to its neighbouring regions, and the effectiveness decreases as the distance increases. Thus, we propose the following hypotheses:

Hypothesis 2.

Establishing environmental courts can enhance public participation in environmental protection, increase enterprise expenditure on pollution control and promote pollution control not only in the local area but also in neighbouring regions.

Hypothesis 3.

The effect of the environmental court’s pollution control is more pronounced in the local area than in neighbouring regions, and it gradually decreases as the distance from the court increases.

6. Conclusions

This paper utilizes a quasi-experiment framework to identify the impact of environmental courts on pollution abatement, considering the proximity effect of policy implementation. We focus on municipal-level samples as the research subjects and employ a spatial difference-in-differences model to identify the pollution abatement effect of environmental courts in the pilot cities and adjacent cities, as well as exploring heterogeneity and mechanisms. Our results demonstrate that environmental courts have effectively reduced industrial wastewater emissions, sulphur dioxide emissions, and nitrogen oxide emissions. After considering the proximity effect of the policy, the pollution abatement effect of environmental courts is more significant. Environmental courts have a stronger effect on pollution abatement in cities with stronger environmental regulations, higher economic agglomeration, and a higher level of openness. Mechanistically, environmental courts promote the government’s environmental supervision and public participation in environmental protection, and expenditure on environmental governance by firms.

The research presented in this paper demonstrates that the implementation of environmental courts, which symbolizes the enhancement of environmental justice, has the potential to transcend the territorial governance model of pollution control. This, in turn, can facilitate the advancement of the overall environmental governance level and improve the local government’s enforcement of environmental laws, foster the public’s participation in environmental protection, and incentivize firms to enhance their pollution control endeavours. Consequently, it can lead to the establishment of an environmental governance system where the public is an active participant. However, it is crucial to acknowledge that the overall regional pollution control effect of enhanced environmental justice must be reinforced by various measures, such as strengthening environmental law enforcement, promoting urbanization, and deepening reform. Hence, to promote pollution control in the future, it is necessary to deepen the reform of the judicial system and encourage the establishment of cross-regional environmental courts to reduce local obstacles to environmental and resource cases. Additionally, improving the government’s environmental law enforcement can form a virtuous circle between administrative law enforcement and environmental justice. It is also essential to promote economic agglomerations and regional economic integration and establish a coordination and cooperation mechanism between regional governments. Continuing to deepen reforms and increase economic openness, while being open and inclusive to all parties’ opinions and suggestions, is crucial. Optimizing the processes associated with environmental justice is also necessary to achieve the maximum effect of environmental justice on pollution control.

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