Economic and environmental implications of raising China's emission standard for thermal power plants: An environmentally extended CGE analysis

Abstract

Thermal power plants are considered as the main source of atmospheric pollutants in China due to their massive emissions of sulfur dioxide (SO2) and nitric oxide (NOX). In order to enhance the environmental protection, the Ministry of Environmental Protection of China has recently introduced a new emission standard of atmospheric pollutants for thermal power plants. However, it is still unclear to what extent the new emission standard may impact on China's environment and economy. In this study we apply an environmentally extended Computable General Equilibrium (CGE) model to assess environmental and economic impacts of the new emission standard in the short term. Our results show that imposing the new emission standard may lead to a reduction in SO2 and NOX emissions by 22.8% and 11.4%, respectively per year, with the absolute amounts being reduced by 5597and 1482 thousand tons. This is the result of improvement of the emission removal technologies and the sharp decline of the coal consumption. On the other hand, the new emission standard may cause about 0.2% loss of GDP in the target year. In terms of changes in prices of goods and services and final demand structure, the new emission standard can make contribution to curbing inflation, with the consumption demand reduced. In addition, the new emission standard can greatly stimulate the industrial output of other special equipment manufacturing sector. Besides, due to the decreasing price of labor and capital, the new emission standard leads to increase in economic output for industrial sectors, and the depreciation of domestic currency would drive an expansion of the export-oriented industries.