Air pollution has been one of the most pernicious consequences of China's last three decades of economic transformation and growth. This report estimates the costs of three measures to reduce air pollution in China: replacing coal with natural gas for residential and commercial heating, replacing half of China‘s coal-fired electric power generation with renewables or nuclear power, and scrapping highly polluting vehicles.

Costs of Selected Policies to Address Air Pollution in China

Keith Crane, Zhimin Mao

ResearchPublished Jan 12, 2015

Cover: Costs of Selected Policies to Address Air Pollution in China
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Air pollution has been one of the most pernicious consequences of China's last three decades of economic transformation and growth. Concentrations of pollutants exceed standards recommended by the World Health Organization in virtually every major urban area. The large costs of air pollution are driven by health impacts and loss of productivity, running 6.5 percent of China's gross domestic product each year between 2000 and 2010, and rising as China's population becomes more urbanized and productive. This report estimates the costs of three measures to reduce air pollution in China: replacing coal with natural gas for residential and commercial heating, replacing half of China‘s coal-fired electric power generation with renewables or nuclear power, and scrapping highly polluting vehicles. The recurring annual costs of replacing coal with natural gas for residential and commercial heating could run from $32 billion to $52 billion, and replacing half of China‘s coal-fired electric power generation with renewables or nuclear power would run about $184 billion, for total recurring costs ranging from $215 billion to $235 billion annually. China could also incur one-off costs of $21 billion to $42 billion for scrapping highly polluting vehicles. Subtracting the value of the coal ($75 billion) for which these fuels would substitute, net annual costs in aggregate would run $140 billion to $160 billion annually, less than one-third of the annual cost of air pollution in China, which was roughly $535 billion in 2012.

Key Findings

China Must Address Its Air-Pollution Problem, and Soon

  • Concentrations of pollutants exceed standards recommended by the World Health Organization (WHO) in virtually every major urban area in China.
  • The large costs of air pollution are driven by health impacts and loss of productivity, running 6.5 percent of China's gross domestic product (GDP) each year between 2000 and 2010, and rising as China's population becomes more urbanized and productive.
  • The Chinese government will need to not only enforce existing anti-pollution regulations much more aggressively, but also substitute other sources of energy for coal to achieve substantial reductions in air pollution.

Three Main Approaches Can Be Taken to Improve Air Quality

  • For China's cities to meet WHO standards for air quality, the burning of coal, biomass, and plastic wastes in urban areas by residential and commercial users will have to stop.
  • To reach healthy air quality levels, China will have to replace a substantial amount of coal-fired electric power, especially in or near major population centers, with generation from power plants that use other, less-polluting fuels, such as natural gas, nuclear, wind, or solar.
  • Motor vehicles have been a rapidly rising source of air pollution in China, especially emissions of nitrogen oxides. China has been addressing this problem by adopting and enforcing the more stringent air pollution standards of the European Union. Scrapping highly polluting vehicles that have remained on China's highways is the most efficient way to reduce air pollution from motor vehicles already on the road.

These Measures Come at a Cost

  • Replacing coal with natural gas for residential and commercial heating could run $32 billion to $52 billion.
  • Replacing half of China's coal-fired electric power generation with renewables or nuclear power could cost $184 billion.
  • Implementing limited buyback programs of old vehicles to get them off the road would be of relatively short duration; and could run $21 billion to $42 billion.
  • However, given that the health costs of current air pollution run 6.5 percent of China's GPD (approximately $535 billion in 2012), improved air and economic output could offset these costs.

Recommendations

  • The near-term priority should be substituting natural gas for coal for residential and commercial use. Boilers and stoves fueled by coal, wood, or wastes are notorious for emitting pollution. Ending the use of these fuels would substantially improve air quality in urban areas, especially in winter months, greatly reducing the number of days when air quality is extremely bad.
  • Replacing coal-fired power with other sources of energy is the most expensive policy measure of the three we evaluate, and would contribute most to reducing overall emissions of total suspended particulates (TSP) and sulfur dioxide in China. However, its impact on urban air quality might not be as great as suggested by the expected decline in emissions. Thus, it should be the second-highest priority of the three options examined.

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RAND Style Manual
Crane, Keith and Zhimin Mao, Costs of Selected Policies to Address Air Pollution in China, RAND Corporation, RR-861-TI, 2015. As of September 4, 2024: https://www.rand.org/pubs/research_reports/RR861.html
Chicago Manual of Style
Crane, Keith and Zhimin Mao, Costs of Selected Policies to Address Air Pollution in China. Santa Monica, CA: RAND Corporation, 2015. https://www.rand.org/pubs/research_reports/RR861.html.
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