The effect of ISO 14001 on environmental regulatory compliance in China

a r t i c l e i n f o Certification to the ISO 14001 environmental management standard is analyzed using data drawn from a survey of manufacturing firms in China. The analysis proceeds by first identifying predictors of ISO 14001 certification and then estimating the relationship between ISO 14001 certification and compliance with environmental regulations. Potential endogeneity between ISO 14001 certification and regulatory compliance is addressed by modeling certification and compliance simultaneously using the SURBP estimator. Results indicate that ISO 14001 certification increases compliance with environmental regulations, and this effect persists after implementing the appropriate controls for endogeneity. Worsening environmental conditions have earned China a reputation for putting economic growth ahead of sustainability. China is the largest emitter of greenhouse gasses in the world (New York Times, 2007), and home to 20 of the 30 most polluted cities in the world (World Bank, 2010). Given the strong potential cross-border effects of these problems, China's environmental crisis has become a subject of global concern. A central element of China's development strategy has been increased integration with world markets. China's accession to the WTO in 2001 sparked concerns that it would become a participant in the global " race to the bottom " : the competitive lowering of environmental or other production standards to increase competitiveness on export markets and attract foreign direct investment (FDI) (Porter, 1999). However, careful analysis has shown that WTO accession had a significant positive effect on China's environmental quality. Vennemo et al. (2008) use a computable general equilibrium (CGE) model to decompose changes in key emissions categories in China along the lines of scale, composition and technique effects as described in Copeland and Taylor (2004). They find WTO accession had a net positive effect on environmental performance in China, driven in large part by the reallocation of resources away from pollution-intensive sectors. These results largely concur with the industry case studies presented in a report by the International Institute for Sustainable Development (IISD, 2004). Vennemo et al. (2008) also find evidence of reductions in certain emissions categories due to the adoption of cleaner production techniques. According to Copeland and Taylor (2004), increased openness to trade can lead to the use of " cleaner " technologies as policymakers respond to increased domestic demand for environmental amenities driven by rising incomes. As incomes rise, domestic consumers demand greater environmental quality, and policy makers respond by tightening emissions …