Objective/Meaning The study aimed to clarify the impact and mechanism of watershed ecological compensation policy on the pollution emission of agriculture-related enterprises, and to reveal the actual effect and potential problems of this policy in pollution reduction and emission reduction.

Methods/Procedures Based on the theoretical analysis, the agricultural-related enterprises were taken as the research object, and the multi-period difference-in-differences model was constructed by using the Chinese Industrial Enterprise Database and the Enterprise Pollution Emission Database. Then, the impact and mechanism of watershed ecological compensation policies on the enterprise pollution emissions were empirically tested.

Results/Conclusions The study found that the watershed ecological compensation policy significantly reduced the discharge level of industrial wastewater from agricultural-related enterprises. The mechanism test showed that the watershed ecological policy could encourage the enterprises to carry out the technological innovation, alleviate the financing constraints of enterprises, and promote the enterprises to invest more funds in environmental protection investment, thereby reducing the pollution emissions and realizing the “Porter’s Hypothesis”. However, there was still room for improvement in the watershed ecological policy. In particular, the policy aggravated the distance between the government and enterprises, promoted the transfer of enterprises to the boundary, and expanded the pollution emissions. Based on this, the countermeasures were put forward to continue to implement and improve the watershed ecological compensation policy, increase the technical and financial support and strength the regional collaborative governance, so as to continuously exert the effect of pollution reduction and emission reduction and prevent the risk of pollution transference.