Abstract
<title>Abstract</title> <p> Countries develop voluntary environmental incentive programs to complement traditional command-and-control regulations. However, the effect of these programs on environmental performance is often unclear. I examine the effects of Mexico’s Clean Industry certificate program on firm performance by drawing on data from 2000 to 2018 and over 3,000 major toxic water polluters. About a quarter of these plants adopted or renewed Clean Industry certificates. I find that plants located in a municipality with higher amount fined on neighboring polluters are more likely to participate in the Clean Industry program. This is called regulator reputation effect, in the enforcement and monitoring literature. I find that plants with own toxic violations detected are less likely to enroll in the program. Plants are less likely to enroll if their neighbors are fined more often. I interpret this result as evidence on peer effects of enrollment in the program. I also find some evidence that Clean Industry participants are more likely to report pollution. The panel data results show that Clean Industry participants reduce their toxic releases by 1,204 kgs annually. From the counterfactual estimators’ model, Clean Industry participants reduce their toxic releases by 56 percent in the third year, after graduating from the two-year certification period. Results are, however, not significant upon estimation within types of manufacturing facility. I conclude that the Clean Industry program has been an effective instrument for promoting compliance with the environmental regulation by increasing pollution reporting at the same time as reducing toxic releases. <bold>JEL codes:</bold> K32, L51, Q28, Q52, Q53, Q58 </p>