Pollution abatement costs and technical changes under different environmental regulations

Balancing economic growth and environmental protection is a global issue that requires both scientific and economic consideration. In this study, we employed a joint production model that accounted for both favorable and unfavorable outputs to calculate the changes in pollution abatement costs (PACs) and the decomposition of SO2 emissions in China's industrial sector from 2001– to 2015. Command-and-control and tradable permit environmental regulation scenarios were specified to assess PACs and changes in these costs associated with changes in technology, input, and unfavorable output production. Our empirical results show that the PACs increased by 0.06% and 0.34% under command-and-control and tradable permit scenarios, respectively. Further analyses of these changes indicated that regulated technology grew faster than unregulated under both scenarios; overall, command-and-control regulations were more conducive to green technological innovations. Both types of environmental regulation reduced industrial SO2 emissions, and the difference between them was minimal. Under the two scenarios, the pollution emissions intensity decreased. Moreover, because the tradable permit policy improved favorable output production via the optimal allocation of resources, the intensity of pollution emissions was significantly lower. As there were advantages to both regulatory options, their balanced application is vital in the short-run. In the long-term, measures should be taken to ensure the full trading of SO2 emission rights. The focus of environmental policies should gradually shift to an emissions trading system to achieve the balanced development of China's environment and economy.