Environmental Policy Planning under Imperfect Market and Government Capacity: A Case of Air Pollution Abatement in China

It is well known that China suffers from severe air pollution. China, however, has also made great progress in addressing the problem. For instance, statistics show that emissions of SO2 and smoke dust, which are two main polluting substances, have substantially been reduced from 23.7 million tons and 17.4 millions, respectively, in 1995 to 19.2 million tons and 10.1 million tons in 2002. This represents a reduction of 14.1 per cent and 41.9 per cent, respectively. This is a great achievement for China, considering the high growth rate of the Chinese economy maintained during that same period and the accompanying increase in energy consumption, which is the source of pollution.1 Such achievements would not have been possible without policy measures known as command and control measures. Above all, China has managed to implement policy measures that are imperative for pollution reduction. Specifically, China has implemented the compulsory closure of small coal mines and small power plants, as well as the mandatory shutdown of small enterprises in such highenergy-consumption industries as the steel and cement industries.