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With the firm level datasets from 2004 to 2014, this paper uses the difference in differences (DID) estimator to explore the effects of China's high-speed rail (HSR) on firms' environmental efficiency. We find that China's HSR lowered SO 2 intensity (SO 2 per unit output value) by approximately 7.9%. More importantly, firms reduce SO 2 intensity mainly through innovation, productivity improvement, and the agglomeration of firms. Our additional analyses show that these observed effects of HSR are mainly driven by firms in core cities, while the environmental efficiency of firms in the peripheral cities seems to be unaffected. Heterogeneous effects indicate that the HSR has a more significant effect on dirty firms, state-owned firms, foreign firms, and large firms. Our results suggest that HSR construction could have contributed to the China's environmental governance. • Using a difference-in-differences estimator, it is the first study to analyze the effect of China's high-speed rail (HSR) on firms' environmental efficiency. • The HSR can significantly improve the environmental efficiency of firms in the affected areas. The results indicate that China's HSR significantly reduced the SO 2 intensity of affected firms by an average of 7.9 percent. • The affected firms improve the environmental efficiency mainly through innovation, productivity improvement, and the agglomeration of firms. • Our additional analyses show that these observed effects of HSR are mainly driven by firms in core cities. Other heterogeneous effects of the HSR are also examined. • There are important implementations for the present, especially for environmental protection and green development. [ABSTRACT FROM AUTHOR]