Environmental Regulation, Technical Efficiency and Water Pollutants Abatement Cost—Evidence from China's Sugar Industry

China's sugar industry is suffering from stringent environmental regulations in a decade. This paper seeks to examine the impact of environmental regulation on technical efficiency, and the abatement cost of water pollutants of China's sugar industry, by using parametric directional distance function as well as 79 sugar firms(plant level)from 2007/2008 to 2012/2013 crushing seasons. The evidence shows that the technical efficiency of sugar industry has increased significantly considering the discharge of water pollutants during the crushing seasons. Both weak and strong regulation indices influence technical efficiency positively and significantly. The higher the water conservation index of sugar mills, the larger the technical efficiency. The average abatement costs (shadow price)of COD, BOD and SS are 53 260Yuan/ton, 72 290Yuan/ton and 5 160Yuan/ton respectively, which are distinctly higher than the price of existing transferable permits. In addition, there are quite different abatement costs of three pollutants of sugar industry in the northern, southern and central area of Guangxi Zhuang Autonomous Region. Therefore, the government should implement inter-regional emission permits to reduce pollution control cost. Moreover, environmental regulation, scale operation and ownership reform will also help reduce abatement cost of pollutants.