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Jian Wu, Xiao Wang and Zhe Yang

Environmental tax reform is now accelerating in China. Most existing studies on environmental tax policy design focus on national- and regional-level impacts, but it is crucial to understand the impact of different policy designs at the enterprise and industry level, since their choice and behavior change has a fundamental impact. This chapter uses enterprises’ relative efficiency as the proxy for enterprise competitiveness, and estimates the potential change of enterprise competitiveness under different policy scenarios using the DEA-RAM model. By observing these changes and their directions, we are able to work out enterprises’ behavior choices under the policy scenarios.This chapter creates a combination of three scenarios of environmental tax, production and emissions, to analyze the impact of environmental tax on enterprises’ production and emissions behavior. This chapter uses the DEA-RAM model to estimate the change of relative efficiency of enterprises. This model allows us to involve negative output (e.g., emissions), and give more flexibility on the sample size, so it is more applicable to achieve the objectives of this study. The chapter presents the following findings. (1) The current pollution fee policy is inefficient; its poor enforcement weakens the incentive for enterprises to adjust their behavior. (2) Enterprises with different ownership and scales perform with great discrepancy in different industries. (3) Carbon tax demonstrates a strong incentive to stimulate the production behavior change of enterprises while for companies with good potential of fuel substitution emissions tax may stimulate more pollutant reduction. In light of these findings we provide somerecommendations for policy reform.