China’s economic growth model has posed challenges to quantifying ecosystem services, which are often overlooked in development planning. Payments for ecosystem services system (PESS) convert ecosystem value into economic value through various methods. A key question is whether PESS significantly enhances atmospheric environmental quality (AEQ), thereby improving air quality and reducing carbon emissions—critical steps toward mitigating climate change and promoting sustainable economic development. This study uses panel data from 280 Chinese prefecture-level cities (2004-2020) to assess the progress of PESS implementation. The econometric model evaluates the impact of PESS on AEQ and explores the underlying causal mechanisms. Empirical results show that PESS contributes to lower air pollution levels and enhanced atmospheric quality, particularly in regions with stronger fiscal decentralization and market-oriented institutions. Improvements in PESS implementation significantly reduce air pollution in China’s eastern and central regions relative to the western region. Further investigation reveals that PESS enhances AEQ by promoting green innovation, facilitating industrial transformation, and influencing enterprise market entry behaviors. This study quantifies PESS implementation by incorporating all payment methods and examines its role in environmental governance. • This study quantifies the progress of the payments for ecosystem services system (PESS). • PESS can improve atmospheric environmental quality (AEQ). • PESS enhances AEQ by promoting green innovation, facilitating industrial structural transformation, and influencing businesses’ market entry behaviors. • PESS’s effectiveness in improving AEQ is more pronounced in eastern and central China than in western China. • The positive impact of PESS on AEQ is pronounced in regions with higher fiscal decentralization and marketization.
Li et al. (Sun,) studied this question.