China's 11th Five-Year Plan and the environment: Reducing SO2 emissions

Abstract:

China's rapid economic growth has been accompanied by a high level of environmental degradation. One of the major sources of health and ecosystem damages is sulfur dioxide (SO₂). Reducing SO₂ emissions is a priority of China's environmental authorities, and the 11th Five-Year Plan (2006–2010) includes the target of reducing total SO₂ emissions by 10 percent from the 2005 level. Given the rapid increase in SO₂ emissions that is expected to occur in absence of intervention, attaining this target will require a significant effort. This article examines the two major policy measures the government is taking to achieve the SO₂ target: a shutdown of many small, inefficient power plants and the installation of desulfurization equipment on existing and new coal-fired plants. We present results from a joint U.S.–China study that we participated in, which estimated the costs and benefits of these policies. We then estimate the economy-wide impacts of the two policies using a multisector model of the Chinese economy. We find that in the aggregate, the economic benefits of the shutdown of the small power plants are large enough to offset the costs of the desulfurization equipment, even without considering the substantial environmental benefits from the reduction of emissions of SO₂ and other pollutants.