Water pollution abatement by Chinese industry: cost estimates and policy implications

Factory-level data are used to estimate water pollution abatement costs for Chinese industry. Joint abatement cost functions are utilized which relate total costs to treatment volume and the simultaneous effect of reductions in suspended solids, chemical oxygen demand, biological oxygen demand and o ther pollutants. Tests of alternative functional forms suggest that a very simple (constant elasticity) model fits the data as well as a complex (tran slog) model, permitting sophisticated policy experiments with relatively si mple calculations. From the results, the cost-effectiveness of current poll ution control policy in China is analysed. Basic conclusions are (1) The be nefits of stricter discharge standards should be weighed carefully against the costs. For the sample of 260 factories, a shift across the existing ran ge of standards entails a present-value difference of US$330 million in aba tement costs. (2) Emissions charges as low as US$1.00/ton would be sufficie nt to induce 80% abatement of suspended solids for cost-minimizing factorie s. Charges of US$3, US$15 and US$30 per ton would be sufficient to induce 9 0% abatement of TSS, COD and BOD. (3) The current regulatory system provide s an economic incentive to abate by charging a levy on pollution in excess of the standard. However, the results suggest that changing to a full emiss ions charge system would greatly reduce overall abatement costs. For the 26 0 factories in the sample, the current overall abatement rate could be atta ined under a charge system at a reduced annual cost whose present value is US$344 million.