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Air pollution has been one of the biggest environmental challenges for cities in their pursuit of sustainability. The removal of air pollutants usually entails a cost that can negatively impact economic activities. Assessing urban environmental performance can offer valuable insights for cities to balance their economic production and environmental protection. This paper develops a novel approach to measuring environmental performance by using the Euclidean distance function. An appealing feature of this approach is its ability in endogenously allocating the optimization pathway to each emitter, thereby avoiding arbitrary estimation results and distorted managerial implications. We apply this approach to study the environmental performance of Chinese key environmental protection cities. We find the heterogeneity in performance estimates and endogenous optimization pathways. Prioritizing the reduction of a specific type of emissions while simultaneously increasing industrial output value seems to be the most appropriate objective for the majority of cities. Our study can serve as a basis for urban governments to pinpoint the underlying factors contributing to low urban environmental performance and establish diverse objectives for enhancing environmental performance. • Environmental performance index is constructed based on endogenous directions. • A Euclidean distance function is used to identify endogenous directions. • Optimization pathways and environmental performance show heterogeneity among cities. • Mitigating NO x emissions can improve environmental performance significantly. [ABSTRACT FROM AUTHOR]

Green credit policy (GCP) can achieve economic growth and environmental conservation, notably by lowering air pollutants (PM2.5). Green credit is a significant component of China's green financing for environmental regulation and achieving carbon neutrality. In this paper, to understand the causal relationship between GCP and PM2.5, we apply a bootstrap full-sample Granger causality test, parameter stability test, and quantile-on-quantile test for the period between 2003:M01 to 2019:M12. The result shows a bidirectional relationship and reveals that GCP has varied environmental implications in its early and mature stages because of a low percentage of green credit and a lack of motivation for financial institutions. In the long run, GCP and PM2.5 interaction confirm the favorable effects of GCP on PM2.5 as the green credit system improves. For robustness, we used quantile-based granger causality to evaluate the causative link between GCP and PM2.5. In light of the findings, this research advises legislative reforms and stresses the relevance of green credit in improving air quality. This study adds additional evidence that air pollution affects green credit policies. Air quality being a leading indicator helps firms anticipate changes in bank credit preferences and alter financing techniques. • The study explores the causal relationship between GCP and PM2.5 • The study used advanced econometrics methods for the period 2003:M01 to 2019:M12. • The result shows a bidirectional relationship between GCP and PM2.5. • GCP has a positive influence on PM2.5 as the green credit system improves. • This study adds further evidence that air pollution affects green credit policies. [ABSTRACT FROM AUTHOR]