Impacts of the desulfurization price subsidy policy on SO2 reduction: Evidence from China's coal-fired power plants

Administrative and order-based environmental regulation policies have always been the main means of pollution control by the government. While, their effects are difficult to assess. The Chinese government implemented a desulfurization subsidy policy for on-grid tariffs, which was implemented in two phases (phase 1: 2004 to 2006; phase 2: since 2007). Considering the dynamic characteristics of the policy, this study adopted three empirical strategies, including difference-in-differences (DID) and pseudo DID method, to verify the causal relationship between the policy and SO2 reduction in China's coal-fired power plants. The results show that there is a clear causal relationship between the policy and SO2 emission reduction. Moreover, the dynamic effect of the desulfurization price subsidy policy has shown an increasing annual trend. The desulfurization price subsidy has effectively motivated enterprises to implement desulfurization facilities, meaning that the capacity for desulfurization and the associated operating costs have been significantly improved. In addition, heterogeneity shows that the desulfurization price subsidy policy performs better in higher marketization and underdeveloped regions. Thus, the Chinese government should strengthen the implementation of electricity price subsidies for desulfurization, and pay attention to the effect and duration of the policy in the process of implementation. •Pseudo Difference-in-Differences methods and mechanism analysis are adopted.•A causal relationship between desulfurization policy and SO2 reduction is verified.•The effect of the subsidy policy on emission reduction shows an upward trend.•The desulfurization subsidy policy was not effectively reducing SO2 in 2004–2006.•The desulfurization subsidy policy significant reducing SO2 after 2007.