Despite the extensive literature on the effects of factor market distortions (FMD) on economic performance, only a limited number of studies have investigated their environmental impacts, and empirical evidence and mechanistic analysis from a micro level remain scarce. Against the backdrop of China’s significant factor market distortions, this study examines the influence of such distortions on firms’ pollution intensity empirically. Our research findings indicate that FMD increases the intensity of firms’ sulfur dioxide (SO₂) emissions, and this conclusion remains valid after accounting for instrumental variable regression. Mechanistic tests indicate that FMD enhance the SO₂ emissions intensity of firms through three channels: by increasing their consumption of fossil energy, by impeding their willingness and ability to innovate, and by diminishing their ability to control pollution.