Comprehensive

Evaluation ofEnvironmental Policies for Greenhouse

Gas and Air Pollution Mitigation by Effective Utilization of Energy Resourcein China: A Region Study
Qian Zhou*

University of Tsukuba

Takeshi Mizunoya

University of Tsukuba

Helmut Yabar

University of Tsukuba

Yoshiro Higano

University of Tsukuba

1. Introduction
The decrease in the quality of the environment has caused discomfort in many parts of China.
Chongqing is one of the most affected cities in this regard. The reason for major air pollution inthe city is the use of high sulphur ash content coal as the main fuel. In fact the proportion of coalin total energy utilization reached 70 % in 2010 (CMBS, 2011). Chongqing city is one of the Acid
Rain Control Zones designated by the Chinese Central Government. The main factors responsible
for acid rain is the continuous emission of SO2 and NOx due to utilization of low quality coal in thepower sector combined with the lack of emission control systems (Zhou et al, 2013).
Technology development and innovation play a central role in reducing GHG and pollutant
emissions by promoting renewable and cleaner fossil fuels. Liu et al (2009) analyzed the impact ofnew energy technologies on China’s GHG emissions and found that high-efficiency coal power
and nuclear power will have a positive impact in the short term. (Wang and Nakata 2009). Liu etal (2011) analyzed the impact of carbon mitigation options in the power sector and found that they
could have great mitigation potential in the future. Most of these studies have addressed the impactof regulations on environmental pollution either from a bottom-up perspective or by just focusing
on technology innovation potential without any consideration for very important factors such as
the industrial structure interactive effect as well as the impact on the whole region’s
macroeconomic development.
To the best of our knowledge no study has addressed this issue from an integrated perspectivein China. From this perspective the optimal technology adoption for regional technology
innovation is decided by, not only the region’s industry structure and economic-technology level,but also regional regulation targets. In this research we use an expanded dynamic input-output
analysis as a comprehensive tool to evaluate the proposed policy and technology options. We takethe Chongqing official environmental regulation targets as emission constraints and estimate theiroverall environmental and socio-economic impact. We also explore the potential of introducing
financial tools such as carbon tax/subsidies to promote technology innovation. Finally we analyze
the potential overall effects of a more moderate regulation standard on the economy and theenvironment.
2. Methodology
The simulation model is composed of 3 sub-models (socio-economic, air emission and energy
Max GRP

Social-Economic
ModelConstraint on Air Pollution
Emission

Air pollution/GHGemission flow model

Energy demandsupply balance model

Environment regulation

Carbon Tax/SubsidySystem

Air Pollution/GHG
Mitigation

Incentives TechnologyInnovation

Figure 1: Comprehensive model framework
demand-supply models) and one objective function (Figure 1). Chongqing’s social and economic
activities as of 2010 provide the simulation base and reflect real social and economic development.
Three economic agents (industry, household, government) were assumed in this research.
In the simulation model, variables are divided into endogenous (en) and exogenous (ex). The
exogenous parameters are calculated based on current data; the endogenous variables will be
determined by the model structure. The research period is 15 years, from 2010 to 2025.
2.1 Objective function
The objective function of this model is to maximize the sum of discounted GDP from 2010 to2025, subject to all the constraints. They can be formulated as:t 111
 1 Max  GRP(t )t 1  1   (   0.05)

(1)4GRP(t )  Vi X i (t )(2)1Where, GRP (t) is the gross regional product in term t (en), Xi(t) is the production of each industry
i in term t (en) and ρ is the social discount rate. Vi is the value-added rate of industry i (ex). Theobjective function is subject to the following constraints. Subscript i are the industries shown intable 2
2.2 Energy consumption and energy intensity
The energy consumption in this model is defined by 7 energy carriers mainly used in Chonqing(Coal, Coke, Gasoline, Kerosene, Diesel Oil, and Natural Gas) and secondary energy electricity.
All the energy units are unified as tons of coal equivalents (TCE). Industry energy consumptionand household consumption amount in the base year is calculated based on (CMBS, 2011).
(3)
4ED(t )consumption
  EDi (t )  ED(t ) t (en) and EDc(t) is a column vector
Where ED(t) is the total primary energy
incterm
1with 7 elements (7 kinds of energy) EDi (t) is industry energy consumption (en). EDc(t) is householdenergy consumption (en).
Total energy consumption TED(t) is the summary of 7 elements in ED(t). Therefore, energy
intensity in term t (Eintensity(t), en) will be identified

through the formulate Eintensity(t)=TED(t)/GPR(t), which is an effective index to evaluate the effectiveness of technology
innovation and environment regulation.
2.3 Balance of the Material FlowsIn Formula 8, the left side represents the supply and the right side represents the demand.
Usually, the supply is not lower than the demand. The input coefficient of production is calculated
based on the 2010 input-output table of Chongqing.
4X i (t )   Aij X j (t )  Cih (t ) C i  I i (t )  E i  M i (t )j 1g(i  1...4)(4)

Whereis an endogenous vector which represents the commodities of all the sectors inindustry i;, calculated based on the input-output table, is an exogenous midrate input coefficientfrom industry i to industry j which shows the technology level of the social economic activities;
is an endogenous vector which shows the household consumption amount of each sector inindustry I;

is an exogenous vector which shows the government consumption amount of eachsector in industry i.

is an endogenous vector which shows the investment amount from eachsector in industry I,(t) is a vector of the export amount of each sector in industry I andis

an endogenous vector of the import amount of commodity of each sector in industry i.
2.4 Value Balance
The left side of the formula is the income and the right side includes expenses. The income ofeach industry is equal to the expenses.
Pi (t ) X i (t )  P1 (t ) A1i X i (t )  Pe (t ) Aei X i (t )  P3 (t ) A3i X i (t )  Yi h (t )   i X i (t )   i X i (t )(5)the endogenous price rate vector of each sector in industry I;

is theWhereendogenous vector of national income of each sector in industry I,

is the exogenous vector ofdepreciation rate of each sector in industry I and τ is the exogenous indirect tax rate vector of eachsector in industry i.
3. Result and discussion
Based on the simulation results, the integrated assessment system can estimate the impact ofpolicies including technology innovation in the energy sector and regional regulation on theregional GHG and air pollution emission trends and economic development trends. By comparing
the different scenarios, we will be able to identify the contributions from different policies throughimprovement in energy intensity and emission intensity, which are important indicators todemonstrate the implication of such policies.
Baseline

3.00E+008

Baseline
S1'
S1S2'
S2GRP (10,000 CNY)

2.50E+008

2.00E+008

S1

1.50E+008

S2

1.00E+008

S1’
S2’

5.00E+007(b)
3.00E+009

Accumulation GRP (10,000 CNY)(a)

2.75E92.32E9

2.50E+009

2.00E+009

1.74E92.13E9
1.58E9

1.50E+009

1.00E+009

5.00E+008

0.00E+0002010

2015

2020

Time (Year)

2025

Baseline

S1'S1S2'

S2Scenarios

Figure 2: Economic development in different scenarios; (a) Economic development trend in different scenarios; (b)Accumulation GRP from 2010-2025 in different scenarios

Figure 2 shows the impact of integrated policy (including regional environmental regulation andpromotion of technology innovation in the energy sector) on economic development (S1, S1’, S2,S2’). Both S1’ and S2’ (which are affected by environmental regulation at current technologies

level but have no policy promotion for technology innovation) have a remarkably lower economicperformance. S1 and S2, on other hand, provide a much better economic performance. This
demonstrates that introducing regulations without promotion of technological innovation will
dramatically affect economic growth. In this case, for instance, in order to achieve theenvironmental target, the interaction of sectors can only reduce the gas emissions through reducing
production and hence energy consumption.
4. Conclusion
In this study we first evaluated the potential environmental and socio-economic impact of thispolicy. We then identify whether the introduction of integrated policies including innovations in
the energy sector coupled with emission taxes and subsidies alone is enough to achieve bothregional government regulations and maintain moderate economic growth. We also analysed theenvironmental and socio-economic performance of a less ambitious air pollution reduction plan of
5% based on the above integrated policies.
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