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1、THE ECONOMIC COST OF CHINAS NEW DE-SULFUR POLICY DURING HER GRADUAL ACCESSION TO WTO: THE CASE OF INDUSTRIAL SO2 EMISSIONJie HEApril 2004Note:Comments should be sent to: Jie HE, CERDI, University of Auvergne, 65, Bd. F. Mitterrand, 63000 Clermont-Ferrand, FRANCE, tel: (33)473177423/fax: (33) 4731774
2、28.Email: Jie.HEu-clermont1.frEEPSEA was established in May 1993 to support research and training in environmental and resource economics. Its objective is to enhance local capacity to undertake the economic analysis of environmental problems and policies. It uses a networking approach, involving co
3、urses, meetings, and technical support, access to literature and opportunities for comparative research. Member countries are Thailand, Malaysia, Indonesia, the Philippines, Vietnam, Cambodia, Lao PDR, China, Papua New Guinea and Sri Lanka.EEPSEA is supported by the International Development Researc
4、h Centre (IDRC); the Swedish International Development Cooperation Agency (Sida); and the Canadian International Development Agency (CIDA).EEPSEA publications are also available online at http:/www.eepsea.org.ACKNOWLEDGEMENTSI would like to thank David Roland-Holst of University of California, Berke
5、ley and Mills College for his generous offer to me to share his China prototype CGE model and the related benchmark SAM, also for all his instructive and patient suggestions during the realisation of this research. I would also like to give my thankfulnness to the resource person of EEPSEA Ian Coxhe
6、ad of University of Wisconsin for his helpful and encouraging comments all along research progress. Thanks are also given to David James of Ecoservices Pty Ltd and Nancy Olewiler of Simon Fraser University. Surely I am responsible for all the errors in the research myself.Note: If acknowledgements a
7、re very brief, they can go at the top of the previous page rather than having a separate page for them. Note: Do not use bullet-point format in the acknowledgements section.TABLE OF CONTENTS 1.0 INTRODUCTION72.0 CHINAS ENVIRONMENT POLLUTION SITUATION AND POLLUTION CONTROL POLICIES103.0 MODEL SPECIFI
8、CATION124.0 POLICY SCENARIOS165.0 TRADE-ENVIRONMENT NEXUS ANALYSIS185.1 Economic and pollution evolution during 1997 to 2000185.2 Empirical results in the four trade-environment nexus policy scenarios225.2.1 BaU scenario225.2.2 Other policy scenarios235.3 Detailed structure changes in output, pollut
9、ion, energy input uses and price changes245.4 Analysis on the contribution of the different economic aspects on pollution reduction by Divisia parametric decomposition method286.0 ANALYSIS ON THE DOUBLE DIVIDEND HYPOTHESIS FOR CHINAS CASE337.0 CONCLUSION AND POLICY DISCUSSION36APPENDIX 1. Production
10、 Nesting Structure40APPENDIX 2. Principal assumptions on the key model elasticity40APPENDIX 3. The expected tariff reduction schedule in China (percents change from 2000)41APPENDIX 4. Model Specification42A. Model specification42B. Model Variables and parameters50REFERENCE58Note: After completing th
11、e research report, as a final step generate the TOC from the Insert menu: Index and Tables (see Section 4, Template Guide, for instructions) and update using F9 whenever any amendments to the document are made to ensure page numbers/headings remain accurate.LIST OF TABLESTable 1. Evolution of Chinas
12、 SO2 pollution levy system in 1990s11Table 2. Energy induced SO2 emissions13Table 3. Conversion factor and emission rate per monetary unit of energy input13Table 4. The related exogenous variable evolution in simulations18Table 5. Macroeconomic changes19Table 6. Structure of production in 1997 and v
13、ariations in 200020Table 7. Structure of energy consumption in 1997 and variation in 200021Table 8. Principal simulation results for Business as Usual (BaU) scenario23Table 9. Decomposition of change in SO2 emission in BAU Scenario (reference: 1997, Divisia method)30Table 9. (Continue) Decomposition
14、 of change in SO2 emission in BAU Scenario (reference: 1997, Divisia method)31Table 10. Macroeconomic changes under the double dividend hypothesis35Table 11. Sensitivity test (Open+Desulfur scenario)39Note: Ditto above, except use List of Tables instead of Table of Contents (see Section 5a, Template
15、 Guide).LIST OF FIGURESFigure 1. Evolution of SO2 emission in China during economic reform period10Figure 2. The price effects of different policies25Figure 3. Output and SO2 emission changes (%)26Figure 4. Trade structure changes under different policy scenarios (%)27Figure 5. The original producer
16、 tax structure in China34Note: Ditto above, except use List of Figures instead of List of Tables (see Section 5b, Template Guide).ESTIMATION ON ECONOMIC COST OF CHINAS NEW DE-SULFUR POLICY DURING HER GRADUAL ACCESSION TO WTO: THE CASE OF INDUSTRIAL SO2 EMISSIONJie HEEXECUTIVE SUMMARYTo understand th
17、e potential impacts of Chinas accession to WTO in her new de-sulfur policy (gradual reduction of 10% of annual SO2 emission by 2005 with respect to that of 2000), we construct a CGE model in which SO2 emission is directly linked to energy input consumption in production. The model equally considers
18、the substitution possibility between energies of different SO2 effluent ratio by including energy as traditional production factor as labor and capital in the constant elasticity of transformation production function. The positive externality of trade on Chinas economy is also included. This model i
19、s then calibrated into a 55-sector Chinese SAM for the year 1997. Four policy simulations (Business as Usual, Openness policy only, De-sulfur policy only, and the combination of openness and de-sulfur policy) are firstly made for 1997 till 2005. The results show the environmental impact of trade, th
20、ough proven to be “negative”, stays rather modest. This is owing to the industrial composition transformation that deviates the specialisation of Chinese economy towards labour-intensive sector under the new trade liberalization process. We do not find proof for “pollution haven” hypothesis. Althoug
21、h seemingly to be ambitious, the new de-sulfur policy will only bring very slight economic growth loss. The pollution reduction will mainly be realized by the substitution between polluting and less or non-polluting energies. The combination of the trade liberalization and pollution control policies
22、 seems to give China more flexibility in adapting her economy to the new de-sulfur objective. Considering different aspect together, the total economy loss due to new de-sulfur policy will be limited to only 0.26% under the presence of trade liberalization. The second part of this research contribut
23、es to double dividend analysis, where we further add to the two scenarios in which the new pollution control policy is applied along with two tax reform schemes aiming at reducing the distortion in original producers tax system. The results confirm the double dividend hypothesis. Instead of transfer
24、ring directly in a simple lump-sum form to households, the increased environmental tax revenue due to new de-sulfur policy, if used to reduce (either partially or thoroughly) the original distortion in producers tax, can not only bring obvious economic efficiency and welfare improvement, but also fa
25、cilitate the substitution of coal by the other less polluting energies and finally aid China to achieve her de-sulfur objective.Keywords: CGE, Trade, Industrial SO2 pollution, Energy substitution, Externality, Divisia index decomposition, double dividend, and large country hypothesis.JEL classificat
26、ion: C68, F18, Q25, Q43.1.0 INTRODUCTIONChinas last ten years economic growth was characterized by a high growth rate. According to official statistical data, her real average growth rate of GDP steadily stayed over 8 percents during 1990-2000. The per capita GDP almost tripled, from 1634 Yuans of y
27、ear 1990 to 3843 Yuans of year 2000. While experiencing remarkable expansion of industrial sector (from 37% of total GDP in 1990 to 52% in 1999), Chinas Statistic Yearbook, (1990-2000). like many other East Asian countries, Chinas economy is in fast integration process into world economy. This is no
28、t only reflected in fast increase of her ratio of international trade to GDP, but also marked by the enormous inflow of foreign direct investments. However, like many of her Southeast Asian neighbors Chinas economy growth and openness success are accompanied by obvious environmental deterioration. D
29、ue to concentration of industrial activities and high population density, since 1980s, SO2 pollution in Chinas urban regions has increased dramatically. In over one third of Chinese big cities, SO2 concentration level is at least twice higher than the standard of 60g/m3 fixed by the WHO (World Healt
30、h Organization) for the developing countries. Chinas Environment Statisitic (1998). Some studies have already revealed the negative impact that SO2 pollution on peoples health in China, especially as a significant cause for respiratory diseases. Xu et al,1994, Wells, Xu et Johnson, 1994 and World Ba
31、nk, 1996a. Meanwhile, the ever-expanding acid rain problem both in south and north China aroused by SO2 emission has resulted in rapid productivity reduction in equipment and soil. World Bank, 1996b.How could we explain Chinas SO2 pollution evolution given her economy growth and trade openness traje
32、ctory? In spite of the various theoretical assumptions, trade-environment nexus still stays ambiguous. Grossman (1995) regarded pollution as a “joint-product” of production activities determined by the three famous economic characters: scale, composition and technical effect. Concerning the possible
33、 trade impact on industrial composition, “pollution haven” hypothesis assumes that given Chinas low income level, openness process will lead China to be an attractive “world” factory center for pollution industries, since her low income level does not permit her to attach as much importance on envir
34、onmental quality as their rich trade partners. However, Copeland and Taylor (1994, 1997) and Antweiler, Copeland and Taylor (2001) indicated that besides comparative advantages coming from one countrys relative environmental regulation strictness, the traditional comparative advantages determined by
35、 natural factor endowment would also be an important factor to influence international production division of the polluting and less- or non-polluting industries. Given Chinas comparative advantages are in labor-intensive sectors, and that we generally believe labor-intensive industries to be less p
36、olluting than capital-intensive ones, Chinas environmental performance should depend on the weighing of these two comparative advantages that lead Chinas industrial composition to go in opposite directions. Besides the consideration on composition impact of trade, Porter hypothesis reasons from tech
37、nical and efficiency aspect, it supposes deepening of openness process might in the long run reinforce production efficiency of Chinas domestic producer, both through ever-increasing direct import of foreign equipment that embodies advanced technologies and through the positive externality of export
38、 frequently used to explain the economy take-off success of the four Asian dragons economy. Moreover, trade-environment relationship can also be explained from scale aspect. If we regard pollution as a “joint-product” of production, given trades positive impact on economy growth and enlargement of i
39、ndustrial production scale, if the industrial composition and technical efficiency keep constant, a higher openness degree will result in more pollution. Since trades environmental impacts can be traced in all the three aspects, without an appropriate analysis permitting us to include all the three
40、aspects, the theoretical conclusion on the trade-environment nexus will certainly be inconclusive.Parallel to the ambiguity in theoretical analyses, recent empirical studies on the trade-environment nexus did not achieve coherent conclusion, either. On one hand, most of the empirical analyses did no
41、t find evidences to support the negative trade-environment relationship supposed by “pollution haven” hypothesis. Like Tobey (ACT, 1990), Grossman and Krueger (1991), Agras and Chapman (1999) and Antweiler, Copeland and Taylor (2001), their results passed on the information that, whatever is its imp
42、lication in pollution, “the trades impact -whether positive of negative- will be small” since different economic determinants of pollution (scale, composition and technical effect) can be all influenced by trade in different degree and sometimes opposite directions. On the other hand, the empirical
43、studies supporting the “pollution haven” hypothesis are quite limited in number. Most of them, are either based on industrial toxicity data (such as Hettige et al, 1992 and Rock, 1996), a pollution indicator extrapolated from US data and not very widely used in empirical analysis, or directly check
44、the pollution impacts of import and export of certain polluting manufacture goods instead of the general openness measurement (Suri and Chapman, 1998), it is hard to believe their results reveal the general trade-environment stories. Furthermore, since most of the empirical works are carried out by
45、using cross-country data, the credibility to extrapolate the static snapshot of cross-country pollution situation to the dynamic pollution-trade relationship for a single country also seems to be relatively limited. Especially for China, her extremely rich coal resource, as the principal cause for h
46、er SO2 air pollution problem indicates the necessity to include her resource characters in the study of her trade-environment nexus. Since trade can actually furnish two ways to help China to reduce the SO2 emission related to coal combustion. One is to enlarge import of other domestically limited c
47、leaner energies from the world market and change Chinas coal-dominated fuel input mix. Another is to import advanced end-of-pipe de-sulfur equipment adapted to coal combustion process.To understand the role of trade in Chinas environment becomes more and more important for Chinese economists and eco
48、logists. Entering the new century, Chinas economy and environment face unprecedented challenges and opportunities. On one hand, according to the related articles in GATT (1994), from the beginning of 2002, China begins to gradually implement her commitments related to the WTO accession, large reduction in tariffs, subventions and gradual phasing out of the NTBs are expected for the following 15 years, with most important changes to happened during the first 10 year. This further deepening op
