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The Green Premium: Environmental Regulation, Environmental Risk and Property Value

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Abstract

This paper estimates the effect of the closure and relocation of chemical enterprises along the Yangtze River on housing prices in China. With a difference-in-differences (DiD) model and detailed data on polluting enterprises, house transactions, and environmental complaints, we find that environmental regulation led to a 1.7% increase in housing prices and a 43.3% reduction in perceived environmental risks, as measured by environmental complaints from surrounding residents. In addition, we observe a greater change in property values among taller buildings than among shorter buildings. This paper elucidates how developing countries can benefit from environmental regulation by influencing residents’ risk perceptions.

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Notes

  1. See “the Yangtze River Economic Belt Ecological and Environmental Protection Plan”, https://www.mee.gov.cn/gkml/hbb/bwj/201707/t20170718_418053.htm.

  2. See “Blue Book of Ecological Governance: China's Ecological Governance Development Report (2020–2021)”.

  3. See http://www.gov.cn/xinwen/2021-03/30/content_5596831.htm.

  4. We lack information that is more granular regarding each enterprise’s timing of closure/relocation to carry out a Callaway-Santanna staggered DiD analysis.

  5. In China, a neighborhood is a gated apartment complex containing strictly controlled entrances for pedestrians, bicycles, and automobiles and often characterized by a closed perimeter of walls and fences.

  6. See http://www.gov.cn/wszb/zhibo330/content_1332747.htm.

  7. To show that the results are not sensitive to the selection of the control group, we use alternative distance ranges to define the control group, namely, 2–4 km, 2–5 km, and 2–6 km. The results presented in Table C1 in Appendix C indicate that the coefficients are still statistically significant after expanding the range of the control group, indicating that our main results are robust to changes in the distance of the houses in the control group from the Yangtze River.

  8. The result remains when treatment takes place at the county level. Among 27 cities along the Yangtze River, 132 counties along the Yangtze River are selected as the treatment group, and 116 counties away from the riverside are selected as the control group. The regression results for the DiD estimation are shown in Table C2 in Appendix C.

  9. See https://www.mee.gov.cn/gkml/hbb/bwj/201707/t20170718_418053.htm.

  10. See http://safety.nanjing.gov.cn/zwfw/shfw/whpgl/201908/t20190823_1634045.html.

  11. See http://gxj.zhenjiang.gov.cn/gxj/xxgkbmwj/201905/2d99886169b842b5b69e863e37c801c3.shtml.

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Acknowledgements

This research is supported by the National Natural Science Foundation of China (Grant No. 71825005, 72161147002, and 72374044). Zhiren Hu and Ziao Zhu provided excellent research assistance.

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Authors and Affiliations

  1. State Key Laboratory of Pollution Control & Resource Reuse, School of Environment, Nanjing University, 163 Xianlin Avenue, Nanjing, 210023, China

    Xun Fan

  2. School of International Trade and Economics, University of International Business and Economics, No.10, Huixin Dongjie, Chaoyang District, Beijing, 100029, China

    Mengdi Liu

  3. Nanjing University of Finance and Economics, 3 Wenyuan Road, Xianlin College Town, Nanjing, 210023, China

    Bing Zhang

  4. Center for Environmental Management and Policy Analysis, Nanjing University, 163 Xianlin Avenue, Nanjing, 210023, China

    Bing Zhang & Weicheng Zhang

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  1. Xun Fan
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Appendices

Appendix 1: Translation of Policy Documents Relevant to the Closure and Relocation of Chemical Enterprises Along the Yangtze River

In this Appendix, we summarize and review policy documents from both the central and local governments in China, with a focus on the policy for the closure and relocation of chemical enterprises within one kilometer of the Yangtze River. The relevant paragraphs of these policy documents have been translated. The purpose of this exercise is to provide additional qualitative evidence that supports the empirical findings in the paper. To narrow the focus, we extract chapters that are most relevant to the closure and relocation of chemical enterprises within one kilometer of the Yangtze River. To better understand the policy, we show the policies issued by the two levels of government in China (central and provincial governments) as follows. Section A summarizes the policies issued by the central government in 2017. Section B provides a province-level example (Jiangsu). To implement the policies issued by the central government, the Jiangsu provincial government issues more detailed policies according to the specific conditions of the province.

1.1 A. Policy Documents from the Central Government in China.

1.1.1 Title: Notice on Printing and Distributing the "Eco-environmental Protection Plan for the Yangtze River Economic Belt"Footnote 9

Date: July 13th, 2017.

Issuing agency: Ministry of Ecology and Environment, Development and Reform Commission, Ministry of Water Resources.

Notified agencies: People’s governments of Shanghai, Jiangsu, Zhejiang, Anhui, Jiangxi, Hubei, Hunan, Chongqing, Sichuan, Guizhou, Yunnan, Ministry of Industry and Information Technology, Ministry of Finance, Ministry of Land and Resources, Ministry of Housing and Urban‒Rural Development, Ministry of Agriculture, General Administration of Quality Supervision, Inspection and Quarantine, Forestry Administration, Energy Administration, Oceanic Administration, and Three Gorges Office.

To implement the major decisions and deployments of the Party Central Committee and the State Council on promoting the development of the Yangtze River Economic Belt, the Ministry of Ecology and Environment, the Development and Reform Commission, and the Ministry of Water Resources, together with relevant departments, have compiled the "Eco-Environmental Protection Plan for the Yangtze River Economic Belt."

The Office of the Leading Group for Promoting the Development of the Yangtze River Economic Belt by Doing Business hereby prints and distributes the "Eco-Environmental Protection Plan for the Yangtze River Economic Belt" to you. Please implement it conscientiously.

Attachment: Eco-environmental Protection Plan for the Yangtze River Economic Belt.

1.1.2 Extracted Relevant Chapters

All economic activities along the Yangtze River must be based on the premise of not damaging the ecological environment. In addition to those projects under construction, new heavy chemical parks within one kilometer of the shoreline of the main stream and major tributaries are strictly forbidden, and the construction of new petrochemical and coal chemical projects in the mid-upstream coastal areas is strictly controlled. Industries that do not meet the requirements for occupying shorelines, river sections, land and layouts must close unconditionally.

figure a

1.2 B. Policy Documents from Provincial Governments in China.

1.2.1 Title: Notice on Printing and Distributing the Jiangsu Province Chemical Industry Safety and Environmental Protection Improvement PlanFootnote 10

Date: April 27th, 2019.

Issuing agency: General Office of Jiangsu Provincial Committee of the Communist Party of China, General Office of Jiangsu Provincial People's Government.

Notified agencies: The party committees and people's governments of all cities and counties (districts), the ministries and commissions of the provincial party committee, the offices and bureaus of the provincial committees, and the units directly under the province.

The Jiangsu Province Chemical Industry Safety and Environmental Protection Improvement Plan has been reviewed and approved by the Standing Committee of the Provincial Party Committee and is now issued to you. Please implement it carefully in light of the actual situation.

1.2.2 Extracted Relevant Chapters

The number of chemical production enterprises along the Yangtze River should be reduced. In principle, all chemical production enterprises within one kilometer of both sides of the main river and tributaries of the Yangtze River and outside the chemical park will close or relocate before the end of 2020. It is strictly forbidden to build or expand chemical parks and chemical projects within one kilometer of the main river and tributary streams of the Yangtze River.

figure b

Appendix 2: Policy Implementation at the Prefectural Level

In this Appendix, we review policy documents from prefectural governments in China, with a focus on the implementation of policies for the closure and relocation of chemical enterprises within one kilometer of the Yangtze River. We provide an example related to policy implementation at the prefectural level (Zhenjiang). Relevant policy documents are translated as follows:

2.1 Title: Notice on Holding the City's Chemical Industry Safety and Environmental Protection Improvement Work ConferenceFootnote 11

Date: May 28th, 2019.

Issuing agency: Zhenjiang Chemical Industry Safety and Environmental Protection Improvement Leading Group and Office, Zhenjiang Bureau of Industry and Information Technology.

Notified agencies: Relevant departments and units of the city.

To implement the document requirements of the Jiangsu Province Chemical Industry Safety and Environmental Protection Improvement Plan (Su Ban [2019] No. 96) and the spirit of the Provincial Government General Office's video conference on the province's chemical industry safety and environmental protection improvement work, after this research, it was decided to hold the city's chemical industry safety and environmental protection improvement work conference and to deploy the recent improvement work first. The relevant matters of the meeting are noted here as follows:

Meeting time: May 31, 2019, 9:15 am.

Meeting place: Conference Room 1, 7th Floor, Building 1, Municipal Administration Center.

Participants:

  1. 1.

    The leaders in charge of major relevant departments such as the Municipal Development and Reform Commission, Bureau of Industry and Information Technology, Public Security Bureau, Ecological Environment Bureau, Transportation Bureau, Emergency Management Bureau, Market Supervision Administration, Statistics Bureau, Fire Rescue Detachment and the main person in charge of the business department.

  2. 2.

    The main leaders, leaders in charge and the main person in charge of the business department of the Economic Development Bureau of each city (district), Jurong City Industry and Information Technology Bureau, Zhenjiang New District Science and Information Bureau, and Zhenjiang High-tech Zone Science and Technology Development Bureau.

Relevant requirements: All departments and units are requested to submit the list of participants to the Material Industry Department of the Municipal Bureau of Industry and Information Technology before 18:00 on May 29th (Wednesday). Contact: Sun Panqin, Fax: 80822128, Tel: 15262913603.

Appendix 3

See Tables 

Table 12 Alternative scopes of the control group
Full size table

12 and

Table 13 Effects of environmental regulation on perceived risks at the county level
Full size table

13.

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Fan, X., Liu, M., Zhang, B. et al. The Green Premium: Environmental Regulation, Environmental Risk and Property Value. Environ Resource Econ (2024). https://doi.org/10.1007/s10640-024-00848-z

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