Welfare loss of China's air pollution: How to make personal vehicle transportation policy

- Air pollution has impacts on health, economy and residential welfare in China.
- PM2.5, PM10-2.5 and O3 are included in our policy discussions.
- PM2.5 pollution is more important than PM10-2.5 and O3 issues in China.
- Alternative personal vehicle transportation policies are investigated.

Given China's notorious air pollution, particularly fine particulate matter (PM2.5) pollution, a detailed understanding of socio-economic costs of air pollution and potential impacts of its abatement policies is crucial for policy-making if sustainable development is to be realized. To provide the first study of its kind for China, this paper builds an integrated assessment framework based on a computable general equilibrium (CGE) model. We find China's air pollution (PM2.5, ozone, and coarse particles ranging from 2.5 to 10 μm) to be a staggering threat to human health, economy and residential welfare. Furthermore, there is empirical evidence for much more importance of the PM2.5 issue. In addition, we investigate the impacts of alternative personal vehicle transportation policies. In terms of gross benefits, the results indicate that the total substitution of plug-in hybrid electric vehicles (PHEVs) for the existing personal internal combustion engine vehicles (ICEVs) would be more beneficial to national air quality and human health than the combination of stringent fuel economy and emission standards for ICEVs, even in the Chinese case of coal-heavy electric grids.