The close combination of fiscal decentralization and political centralization is the core connotation of Chinese-style fiscal decentralization. This paper tries to explain the China's environmental pollution based upon the perspective of Chinese-style fiscal decentralization, and reveals the incentive distortions to local government by fiscal decentralization. Utilizing the provincial panel data from 1998 to 2012, using entropy evaluation method to measure environmental pollution index and setting fiscal decentralization index, local government competition index and control variables such as industrial structure, foreign trade dependence and foreign direct investment, the paper studies the effect of Chinese-style fiscal decentralization on environmental pollution by establishing econometric model. The empirical results show that Environmental Kuznets Curve has existed in China, and Chinese-style fiscal decentralization and its incentive distortions to local government cause the deterioration of environmental quality, and the degree of environment pollution will get worse with the enhancement of fiscal decentralization and the growing competition among local governments. Further study of differences in east, central and west regions shows that there exists marked regional difference of the effect of fiscal decentralization on environmental pollution among different regions. The study finds that the impact of Chinese-style fiscal decentralization on central and west region is more than the eastern region, and the central and west region is more susceptible to the industrial structure, foreign trade dependence and foreign direct investment.