Environmental regulation, coal de-capacity, and PM2.5 in China

This paper examines how the removal of excess coal production capacity has affected the air quality in China. A coal de-capacity policy, including a reduction in coal, downscaling of the pollution in mines, and strict regulation of coal production, was implemented in 2016. However, until now studies have paid little attention to the effects of coal de-capacity on air pollution. Using panel data from 294 cities covering from 2014 to 2020, we employed a continuous Differences-in-Differences (DID) method to show that coal de-capacity significantly reduces Particulate Matter 2.5 (PM2.5). This finding is robust to using alternative indicators, Instruments Variable (IV) and the Propensity Score Matching with Differences-in-Differences (PSM-DID) method. The heterogeneity analysis suggests that the coal de-capacity policy has a larger effect on eastern, northern cities, and those with higher initial PM2.5 and a heavier industrial base. The PM2.5 deduction is caused by cleaning coal production under the coal de-capacity. These findings provide new knowledge on the environmental benefits of coal de-capacity and demonstrate the environmental benefits of Chinese supply-side reformation.