A bi–level model for transferable pollutant prices to mitigate China’s interprovincial air pollution control problem

In this paper, we develop a bi–level transferable air pollutant price (TAPP) model, and use the model to find ways to mitigate China’s interprovincial air pollution control problem. In this model, the leader is China’s central government and the followers consist of China’s 31 provinces. The leader aims to decrease the nation’s total pollutant control costs, whereas each province attempts to minimize its pollution control costs by balancing its own pollutant reduction cost with transfer payments to or from other provinces, in the context of a transfer price set by the leader. We chose a Karush–Kuhn–Tucker approach with an embedded bisection algorithm to solve the model. We then applied the TAPP model to the seriously polluted Beijing–Tianjin–Hebei area of China. Compared with the current command–and–control regulation approach, the TAPP model for the Beijing–Tianjin–Hebei area decreased the total environmental cost by US$ 3 964.61×103 (10.5% of the current command–and–control regulation cost). This demonstrated that the TAPP model was superior because it both mitigated the problem of air pollution transport across regional boundaries and utilized the available resources of the study area more efficiently.