Does the regional atmospheric quality punishment incentive mechanism (AQPI) promote environmental regulation? Subordinate government as an agent of superior environmental policies

Subordinate governments act as both agents of superior environmental policies and economic development leaders of the areas under their jurisdiction. The effectiveness of superior–level environmental policy is determined by the degree the subordinate governments are motivated to strengthen environmental regulation. Bottom–up punishment is introduced in the traditional top–down financial rewards to form a two–way atmospheric quality punishment incentive mechanism for the subordinate governments to improve environmental regulation. We take the atmospheric quality punishment incentive implemented in Shandong Province as a case, and the results show that the prefectural governments were encouraged to improve environmental regulation. However, the emission reductions were observed along with the decreased economic output in pollution intensive firms, not based on decreased intensity of key atmospheric pollutant emissions. In this case, the weighting and penalty price established for key pollutants should be increased, so that the subordinate governments can better assume the role of superior environmental policy agent.