When the fire ends: Straw burning, regulation, and pollution substitution

Environmental regulations can trigger unintended pollution externalities if they lack well-designed economic incentives or fail to account for the responses of polluters. This paper examines the effectiveness and unintended consequences of the Universal Prohibition on Straw Burning (UPSB) policy in China. By exploiting a generalized difference-in-differences design, we find that the UPSB policy significantly reduces agricultural fires and air pollution through top-down campaign-style enforcement. However, as straw burning is commonly used to kill pests and fertilize the soil, the UPSB policy also increases the use of chemical fertilizers and pesticides, leading to magnified water pollution. Cost-benefit analysis suggests that much of the health benefit from improved air quality is offset by the health cost from degraded water quality. Our findings highlight the importance of considering the potential responses of individuals subject to the regulation when conducting policy evaluation. • This paper examines the effectiveness and unintended consequences of the straw burning regulation in China. • We find that the policy significantly reduces agricultural fires and thereby air pollution through top-down campaign-style enforcement. • However, as straw burning is commonly used to kill pests and fertilize the soil, the straw burning regulation policy also increases the use of chemical fertilizers and pesticides. • Unintendedly, the policy leads to increased water pollution. • Cost-benefit analysis suggests that, when taking the potential consequences of water pollution into account, the cost of the policy exceeds its benefit.