China Policy Journal Volume 1, Number 1, Fall 2018 | Page 119

China Policy Journal
stakeholders’ role in improving firms’
environmental performance (Arora
and Cason 1998; Blackman and Banniseter
1998; Pargal and Wheeler 1996;
Wheeler et al. 1997), concerns about the
public’s ability to understand and utilize
complex emissions reports remain. For
example, Bui and Mayer (2003) find that
the release of TRI’s highly detailed information
on facilities’ toxic emissions
has virtually no effect on housing prices
in neighboring areas, even when the release
of such information is unexpected.
The dual problems of emission inventories
in developing countries—technical
feasibility and public understanding—
have led to a preference for programs
that condense complex information into
environmental performance ratings that
are disclosed to the public.
The literature finds a significant,
positive impact of PRD programs on
regulatory compliance (Afsah, Laplante,
and Wheeler 1997; Dasgupta, Wang,
and Wheeler 2006; Garcia, Sterner, and
Afsah 2007; Garcia, Afsah, and Sterner
2009; Wang et al. 2004). Dasgupta,
Wang, and Wheeler (2006) summarize
the changes in compliance rates for several
PRD programs in Asia. During the
first and second years after inception,
compliance rates among covered firms
increased from 37% to 61% in Indonesia,
8% to 58% in the Philippines, 10% to
24% in Vietnam, 75% to 85% in Zhenjiang,
China, and 23% to 62% in Hohhot,
China. Several empirical studies also
find that PRD programs have improved
firms’ environmental performance in
Indonesia (Afsah, Laplante, and Wheeler
1997; Garcia, Sterner, and Afsah
2007; Garcia, Afsah, and Sterner 2009)
and China (Wang et al. 2004). However,
data constraints generally limit these
studies to comparisons of environmental
ratings before and after program implementation,
or comparisons of compliance
status between rated and unrated
firms. Unfortunately, intertemporal
rating comparisons are subject to confounding
effects from time-varying factors
such as technology change, while
cross-sectional comparisons can be subject
to significant selection bias.
3. China’s Green
Watch Program
Despite long-standing efforts to
control pollution with traditional
regulatory instruments,
China continues to have severe pollution
problems. This has led China’s State
Environmental Protection Administration
(SEPA) to test the effectiveness of
environmental PRD program supported
by the World Bank. In 1999, SEPA
launched its Green Watch program in
Zhenjiang City, Jiangsu Province, and
Hohhot City, Inner Mongolia Autonomous
District. Zhenjiang implemented
a relatively complex rating system, as
shown in Figure 1, while Hohhot used a
simpler rating system that was suited to
its lower level of economic and institutional
development (Wang et al. 2004).
As shown in Figure 1, Green Watch in
Jiangsu rated firms’ environmental performance
from best to worst in five colors—green
for superior performance;
blue for full compliance; yellow for
meeting major compliance standards
but violating some minor requirements;
red for violating important standards;
and black for more extreme non-compliance.
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