Reconciling Control of Carbon and Air Pollution with Economic Growth in China

The rapid economic growth in China over the past 30 years brings parallel degradation of the environment. Recently, China has adopted stringent environmental targets under the 11th Five Year Plan (FYP) for 2005-2010. In this paper, we develop links between a multi-sector economic CGE model, a detailed emissions inventory, an advanced atmospheric model (GEO-CHEM model), and a environmental health assessment tool (BenMAP model) to assess the costs and benefits of such 11th FYP policy measures, and then compare them with a hypothetical carbon tax. We find that, the 11th FYP SO2 policy appears to be an effective policy success for SO2 control over the time horizon of our assessment, leading to very large avoided damages to public health, and doing so at a sizable net benefit to Chinese consumption, investment, and GDP. A modest carbon tax, though achieving less SO2 reductions, it would substantially reduce carbon emissions, as well as other local air pollution as a broader multi-pollutant control policy than the11th FYP policies. There is a cost to GDP from a carbon tax policy; however, if the revenue is recycled back by reducing existing tax rates rather than the lump-sum transfer, the negative impact on GDP would be relatively smaller.