China Policy Journal Volume 1, Number 1, Fall 2018 | Page 147

China Policy Journal
with open-source data: (1) the firms
that have committed three or more
violations, or received three or more
specific penalties (i.e., fines, suspension,
or shutdown); (2) the firms that
are subjected to one-year interagency
supervisions jointly conducted by
the EPBs and Bureaus of Discipline
Inspection (BODI) at the municipal
or provincial level (gua pai du ban);
and (3) the firms are included in the
Environmental Noncompliance Blacklist
(ENCB) disclosed by the Guangzhou
EPB. The ENCB is an important
supplement to the formal regulatory
system focusing on large pollution
sources, as it strengthens law enforcement
on the small-sized polluters in
scattered locations on the periphery of
cities and the areas where the reach of
state regulation is scarce. (More details
of the ENCB and its implementation
in Guangzhou will be provided in Section
4.)
Applying the criteria to our
dataset, we have identified 65 out of
the 250 polluting firms as chronic offenders.
Among them, 37 were SMSs,
mostly large state-owned enterprises
(SOEs), monitored directly by the
MEP. The remaining 28 cases were
mainly small-sized plants subjected to
prioritized monitoring by local EPBs
and included in the ENCB for enhanced
law enforcement. There are at
least 18 blacklisted factories included
in our dataset and, by the time of writing
this paper, none of these polluting
firms have been removed from the prioritization
lists.
2.2. Analytical Framework
To analyze the formal and informal
enforcement activities and
how they might reverse chronic
noncompliance, we adopt the framework
based on the economic calculation
of costs and benefits responding to
enforcement activities, as explained in
the introduction section. The benefits
of noncompliance are mainly the saved
costs to comply with certain environmental
laws and policies, such as those
for mitigating emissions. The costs of
noncompliance are the expected penalty,
resulting of two factors namely, the
probability of catching noncompliance
and the penalty for noncompliance. A
key research question is how to effectively
deter environmental noncompliance.
With different data and methodology,
other studies have concluded
that detection probability is more important
(Grogger 1991), or that punishment
severity is more important (Friesen
2009), or that both are important
(Earnhart and Friesen 2012).
Environmental noncompliance
is one of the most important causes of
China’s current environmental crises
(Xu 2011, 2013). Noncompliance cannot
be deterred without a high-enough
proportion of cases being caught and
punished (Guo et al. 2014; Xu 2011).
Catching noncompliance by firms is
predominantly reliant on effective techniques
of monitoring, reporting, and
verification (MRV) designed, deployed,
and executed by government regulatory
agencies at various levels. However,
the positive correlation between the
deployment of MRV techniques and
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