Water Pollution Abatement by Chinese Industry: Cost Estimates and Policy Implications

Abstract

Using factory-level data provided by China's National Environmental Protection Agency and the Tianjin Environmental Protection Bureau, the authors of this report estimate the costs of water pollution abatement for Chinese industry. Using their econometric results, they analyze the cost-effectiveness of current pollution control policy in China and make the conclusions that follow. (1) For each pollutant, marginal abatement costs exhibit great differences by sector, scale, and degree of abatement. (2) The benefits of stricter discharge standards should be weighed carefully against the costs. (3) Emissions charges as low as $1 per ton would be sufficient to induce 80 percent abatement of suspended solids, chemical oxygen demand, and biological oxygen demand, respectively. (4) The current regulatory system provides an economic incentive to abate by charging a levy on pollution that exceeds the standard. The results of this analysis suggest, however, that changing to a full emissions charge system would greatly reduce overall abatement costs. The approach the authors recommend for measuring the costs of abatement is to use joint abatement cost functions that relate total costs to treatment volume and the simultaneous effect of reductions in suspended solids, chemical oxygen demand, biological oxygen demand, and other pollutants. Tests of alternative functional forms suggest that a simple (constant elasticity) model fits the data as well as a complex (translog) model does, permitting sophisticated policy experiments with relatively simple calculations.