Evaluating the Trade‐Offs Between Emissions Reductions and Economic Development: Insights From Bureaucratic Performance Assessment Reforms in China

ABSTRACT This paper explores the effects of bureaucratic performance assessment reforms on pollution control and economic development. In late 2005, China prioritized SO 2 emission reductions as a criterion for bureaucratic performance evaluation. Using the difference‐in‐differences approach, we find that (1) the reforms significantly reduced industrial SO 2 emissions by about 7.01% and industrial total factor productivity by 0.16%. (2) The effects of the reforms are only for the dirty industry, are not present in clean sectors, occur only after the government correlates emission reduction performance with political promotions, and are mainly driven by regions under local bureaucrats with bright promotion prospects. (3) Local bureaucrats shifted focus from economic development to environmental regulation, resulting in more investment by firms in emission reduction equipment/technology (unproductive) as the main channel. (4) While industrial activity was significantly suppressed, commercial activity increased significantly, with corresponding land supply, prices, and new commercial ventures. (5) Preliminary estimates peg the cost for businesses at RMB 55,900 per ton of SO 2 emissions reduced. However, concurrent improvements in air quality yield approximately RMB 74.1 billion annually in medical and life value gains. Our study provides insights for correcting bureaucratic environmental enforcement distortions and ideas for understanding China's economic transformation.