By adopting both case study and survey methods in investigating enterprises' compliance behavior in dealing with the Pollution Charge System (PCS) in China, this project found that no matter what the existing fee level is compared to the optimal fee level, the enterprises respond to it in an economic way. However, most of their compliance behavior and the local environmental protection bureaus' (EPBs) enforcement behavior lower both the incentive functions that the existing fee level could have offered and the overall effectiveness of the PCS. Thus there is a need for reforms within PCS itself, (e.g., removing subsidy and raising fee rate) and institutional reforms within the EPBs.