How do pollution fees affect environmental quality in China?

Pollution fees are an important financial tool for the government to achieve environmental protection goals. Accordingly, evaluating the emissions-reduction effect of pollution fees has important theoretical value for China's construction of an ecological civilization. Thus, using panel data of China's 30 provinces for the period 2000–2017, we examine the dynamic linkage between pollution fees and sulfur dioxide (SO2) as well as chemical oxygen demand (COD) emissions. We further explore the moderating role of pollution fees in the innovation-emission nexus and regional heterogeneity. The primary findings of our study indicate that: (1) The imposition of pollution fees and technological innovation can help mitigate SO2 and COD emissions. Economic growth shows a significant inverted U-shaped relationship between SO2 and COD emissions; (2) levying pollution fees can effectively promote the technological innovation of enterprises, thus further reducing pollutant emissions; and (3) the impacts of levying pollution fees on SO2 and COD emissions differ across various regions; in other words, significant regional heterogeneity exists between regions. Only in low-fees and low-emission regions can pollution fees help mitigate SO2 emissions. Finally, we provide several policy pathways to promote energy conservation and emissions reduction.