How government rules shape how much companies fake their green efforts

Companies in China’s most polluting industries often get caught between two kinds of government pressure. One kind, called environmental subsidies, actually seems to push some firms toward lying about how green they are. It sounds backwards, but getting cash for being green can make managers focus on grabbing the money instead of making real changes. The other kind, pollution taxes, works like a strict teacher. Firms pay more when they pollute, so they cut emissions to avoid the bill.

The difference matters because China plans to reach “dual carbon” goals by 2060: peak emissions now and net-zero later. Heavy polluters play a big role in hitting those targets. A study tracked hundreds of these firms from 2011 to 2022. It found subsidies had a “crowding-out” effect—managers used the money for their own gain instead of real greening. Taxes had a “forcing” effect, making bosses act because the costs were too high to ignore. Not every company reacts the same way. Firms with balanced ownership and active boards resist cheating under subsidies better. In regions where markets work well and analysts watch closely, taxes also work faster. In short, throwing money at pollution may backfire, while making it expensive to pollute pushes real progress.

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