Spillover effects of structure-adjustment pollution reduction measures in China's iron and steel industry

Abstract

The iron and steel industry (ISI) is a significant source of sulfur dioxide and particulate matter pollution in China. Existing research on regional environmental regulation or ISI emission reduction strategies tends to overlook spillover effects and the enterprise perspective. During the heating season, production limitations in ISI are potential policy measures for achieving structural emission reductions in heavily polluted cities in China's Jing-Jin-Ji and surrounding regions. We adopt a bottom-up modeling approach, incorporating effective production time to describe enterprise behavior and establishing a quantitative trade model based on trade theory. By modeling three types of production restriction policies outlined in policy documents, we evaluate the emission reduction effects of structure-adjustment measures using the example of reduced effective production time for steel-producing enterprises in the air pollution transmission channel in the Beijing-Tianjin-Hebei area. The results indicate the following: (1) Reducing the effective production time of ISI enterprises can help decrease domestic production value and total factor productivity in pollution-intensive industries, including but not limited to ISI. It also leads to reduced emissions of various pollutants in the implementation regions. (2) Due to interprovincial trade and input-output linkages, structural reduction measures in certain regions have implications for almost all other provinces' industrial structures. Differences in initial industrial structures, factor endowments, and geographical locations contribute to varying directions and magnitudes of industrial structural changes. Pollution-intensive industries' share tends to increase higher in less developed regions. (3) Our estimated pollution reduction is smaller compared to the literature evaluating clean air policies in similar regions using top-down strategies. This discrepancy arises because we analyze a single policy tool rather than modeling industry-wide emission fluctuations from the top down. Additionally, our modeling approach allows us to examine dynamic changes in comparative advantages. The increase in production scale for certain industries in policy-affected regions partially offsets the decline in pollution emissions. These findings enhance our understanding of structure-adjustment reduction measures' role and highlight their potential advantages and limitations.