Carbon co-benefits of tighter SO2 and NOx regulations in China

Air pollution has been recognized as a significant problem in China. In its Twelfth Five Year Plan, China proposes to reduce SO2 and NOx emissions significantly, and here we investigate the cost of achieving those reductions and the implications of doing so for CO2 emissions. We extend the analysis through 2050, and either hold emissions policy targets at the level specified in the Plan, or continue to reduce them gradually. We apply a computable general equilibrium model of the Chinese economy that includes a representation of pollution abatement derived from detailed assessment of abatement technology and costs. We find that China's SO2 and NOx emissions control targets would have substantial effects on CO2 emissions leading to emissions savings far beyond those we estimate would be needed to meet its CO2 intensity targets. However, the cost of achieving and maintaining the pollution targets can be quite high given the growing economy. In fact, we find that the near term pollution targets can be met while still expanding the use of coal, but if they are, then there is a lock-in effect that makes it more costly to maintain or further reduce emissions. That is, if firms were to look ahead to tighter targets, they would make different technology choices in the near term, largely turning away from increased use of coal immediately.