Air Pollution in China and Its Effects on Economy

Executive Summary

In the recent years, China has taken the center stage in leading global discussions on climate change. This move should not be surprising since China is the single biggest producer of air pollutants in the world. With reference to the Coasian bargaining theory, this paper argues in favor of the Coal Cap Policy adopted by the Chinese government in 2013 with the aim of reducing coal usage significantly by 2021. The policy was part of the larger goal, which is to have coal usage peak by 2030. As the paper reveals, the Coal Cap Policy has not only reduced air pollution in china, but has also significantly reduced the levels of carbon dioxide in the air across the world.


The English word “airpocalypse” was coined in 2013 to describe the severe smog that engulfed Beijing and several other cities across China in 2013. The country has experienced the worst air pollution in the recent history, owing to the concentration of industries in its major cities. Most of these industries use coal as the primary fuel, sending emissions such as Carbon dioxide (CO2), sulfur dioxide (SO2), and nitrogen oxides (NOX) into the air.

Given this situation, the Chinese government has put in place various policies to curb this trend. Recently, Beijing declared a ‘red alert’ that caused schools, constructions sites, and factories to be closed amid the fight to curb air pollution. Further, adjustments such as the reduction in coal consumption have resulted in considerably low emissions of SO2 and NOX. However, some of these measures are viewed as temporary. China relies heavily on industrialization. As such, it would be detrimental for the economy to hinder the growth and operation of industries that depend on coal energy.

Background Information

The Chinese central and local governments have remained dedicated to curbing climate change. More so, Beijing views curbing air pollution as the best way to manage climate change. One of the most significant policies targets the significant reduction of emissions from burning coal. In its 13th Five-Year Plan (FYP), the central government announced in 2012 that plans were underway to cut coal emissions by up to 25 percent (Buckley 6).

Additional objectives included ensuring that coal was burned more efficiently to result in minimal emissions. To date, coal remains the most significant source of affordable industrial fuel in China. As Buckley observes, the country is the world’s largest producer and consumer of coal (6). However, with FYP, alternative sources of energy such as electricity and solar power will be embraced. In line with the 13th FYP objectives, the China Coal Consumption Cap Project was launched in 2013.

The Natural Resources Defense Council (NRDC) initiated the China Coal Consumption Cap Project, hereafter referred as the “Coal Cap Policy”. It brought together 17 stakeholders, including the government, industrial associations, and research institutes. The Coal Cap policy targets to assist China to maximize its coal use by 2020. Simultaneous efforts would see coal replaced with renewable energy sources by the same year.

The ultimate goal of the Coal Cap Policy would be to help China in achieving its strategic environmental and climate goals. The government initiated energy and carbon targets, which have improved the country’s fuel consumption efficiency with time while also reducing carbon emissions. The State Council launched an additional project dubbed “Air Pollution Prevention Action Plan” in September 2013. The project targets reducing coal combustion. Its main objective was to set a cap on the consumption of coal in key pollution regions. The Air Pollution and Prevention Action Plan requires the targeted industries to reduce their coal consumption to reasonable levels by the year 2017.

This paper argues for the Coal Cap Policy and other supportive frameworks whose primary concern is to reduce coal consumption in China. According to Sun et al., China consumes as much coal as all the other countries combined (1640). At the same time, burning coal is the biggest cause of carbon emissions across the world. This fact places the country at the center of the international concerns about climate change and global warming. Incidentally, experts feel that numerous alternative energy sources, which are available to China, can replace the use of coal. Clean energy includes wind, solar, and nuclear sources.


Reducing the consumption of coal has caused the emission of substances into the air to reduce significantly. Major substances produced from burning coal include SO2, NOX, and carbon dioxide (CO2). With measures having been put in place to curb overreliance on coal, the emission of these substances has decreased impressively. According to Sun et al., sulfur emissions in China dropped to 19.7 million tons in 2014, down from 21.9 million four years earlier (1639).

This progress resulted from desulfurization efforts to reduce sulfur from coal energy plants. In addition, the amount of NOX produced from coal burning reduced from 24 million tons to 20.8 million tons in four years between 2011 and 2014. These two gasses are primary components of the fine particles known as “PM 2.5”. They are also major elements of smog. PM2.5 is responsible for respiratory complications. It is feared to be a potential cause of cancer. Therefore, with the emission of these gasses stabilizing, the air in major cities such as Beijing is slowly becoming clean again.

China has numerous opportunities to reduce the consumption of coal without necessarily affecting the economy. The country has a huge potential to harness energy from the various sources available to the country, some of which are renewable. They include wind, natural gas, solar, and nuclear power (Yuan et al. 11). In 2016, the government announced that it targeted to harness 20 gigawatts (GW) of wind, as well as 15 GW of solar energy in 2017.

Further, grid interaction would be improved to link the various sources to a common grid. If these steps are taken as proposed, few investors will turn to coal. Already, pressure is piling up on industry owners to reduce the amount of coal-fired power they rely upon. Thus, investing in coal today can be termed as a bad investment, given that such projects may become idle in the near future. For instance, Shanxi province has been the biggest producer of coal in China. However, in the realization that coal projects face a dim future, the province is rapidly building solar energy projects to replace coal as the key source of energy.

Another aspect of the Coal Cap Policy is that it targets increased efficiency in the burning of coal as a way of reducing emissions. The coal used today varies in degrees of efficiency and hence the main reason why coal-related emissions remain significantly high (Yuan et al. 8).

Increasing efficiency would result in fewer emissions, particularly in industries that are not ready to adopt other energy sources. Yuan et al. assert that China still consumes over 3.6 billion tons of coal annually (4). As well, state-owned businesses are still installing coal projects to sustain their fuel requirements. This move is a clear indication that as a country, China is not ready to move away from coal entirely.

The cap on coal will reverse global warming by reducing the emission of CO2. CO2 is the biggest contributor of global warming. At the same time, coal-fired power industries form the largest source of all CO2 produced by humans. Consequently, burning coal is the single biggest threat to the environment, particularly, regarding global warming (Yuan et al. 7). For this reason, China single-handedly holds the key to reduced global warming, which is to move away from burning coal.

Experts believe that China’s decision to abandon coal will result in the country meeting its international climate commitments ahead of time. This move may help to reduce the rising global temperatures and sea levels because of the melted ice. If the present trends in the use of coal continue, China’s goal to climate change may be adjusted to 2025. The major stakeholders in the climate debate, including the United States, which is the second largest emitter of CO2, view this move as favorable.

The commitment to reducing coal use is a reflection of China’s determination to the global climate goals. Presently, the country is leading the debate on global warming, with an unwavering determination by the country to contribute significantly to climate change. While addressing the world economic forum at Marrakech in January 2017, President Xi reiterated China’s commitment. For a country that accounts for 30 percent of all total emissions, it is encouraging to note the positive attitude with which it has approached the concept of global warming. Already, with China at the forefront, the green development has borne encouraging results across the world.

For instance, since 2015, carbon emission levels have remained stagnant, largely because of the weakening demand for coal in China. At the same time, Li et al. warn that any progress made so far would easily be erased if the country detracts from its commitments (1680).

China’s recent bold strides have influenced other nations to adopt similar measures to curb the use of “dirty fuel” sources. The country had remained largely uncommitted to promoting the protection of the environment prior to 2009. As such, China developed an unimpressive reputation for its nonchalance regarding climate change. However, with a shift in attitude, the country has joined the United States as the key contributors to the discussion on climate change.

Unsurprisingly, China and the US are the biggest emitters of air pollutants in the world. In their position, the two countries are influencing other nations to adopt policies that will reduce the consumption of carbon-emitting substances (Li et al. 1679). The Paris Accord binds both countries to lead in the international cooperation on matters of global warming and climate change. With the recent developments, various nations are expected to ratify the Paris Accord to attain the member states’ threshold required to enforce the treaty. Thus, China’s prominent entry into the global discussion on climate change has transformed other nations’ commitments to the same.

The Coasian bargaining theory argues that pollution should be approached from the perspective of an economic bargain whereby the property rights belong to the polluter. The victims may pay the polluter to avoid causing pollution. Such a market-like solution succeeds if the harms of the pollution are worse compared to the benefit achieved from the goods produced from by the polluting activity (Sun et al. 1640).

This theory can be adopted in the measures established concerning cap coal consumption by China. As stated earlier, the country is the world’s leading emitter of air pollutants. Arguably, activities that cause pollution in the country benefit people all over the world. As Qi et al. explain, many industries have moved their production plants to China, owing to the lower costs of production (17). This situation makes it the hub of industrial activity across the world. Consequently, if other nations wish to reduce or stop the pollution by China’s coal burning, they must weigh the benefits versus the harms. The other nations can then proceed to pay the country not to pollute the environment.

Alternatively, the property rights are in the possession of the victims. Here, victims would entail other nations, which suffer from China’s emissions. If then it wants to keep polluting the environment, other nations can demand compensation for such pollution. A typical illustration of the Coasian bargaining in practice involved China and Japan. Weibust explains that the country’s continued use of coal was causing air pollution in Japan and other neighboring nations (52).

Determined to reverse this situation, Japan decided to aid China in improving its energy sources to avoid overreliance on coal (Weibust 52). At the domestic level, a Coasian bargain can exist between the central and local governments. Where local governments possess the property rights, they can cause pollution. Thus, the central government in the best interest of the citizens would seek to pay the local governments to reduce pollution. As Qi et al. explain, the national government plays the central role in protecting the environment from pollution (18). The main challenge with the Coasian theory is that it does not guarantee the reduction of pollution to a zero level. Besides, its application cannot be extended to externalities that affect future generations, as well as other species.


Opponents of the Coal Cap Policy believe it is detrimental to the Chinese economy. True, coal is the cheapest source of energy for the Chinese industries. As such, shifting to other sources of energy may prove costly. However, such costs would only be experienced during the transition period before stabilization finally ensues. Furthermore, China boasts of other cheap sources of energy such as wind and solar. Presently, the country is building major wind turbines at the rate of two every hour to counter the annual increase in demand. Moreover, energy experts believe the country has a long way to go before it can fully exploit its wind energy capacity (Sun et al. 1636).

Further, wind-fuelled power stations are being given a bigger priority of accessing the national power grid. Such priority was being given to the coal-fired power plants in the past. Similarly, both the local and national government are investing in mega-solar projects that target to harness solar power. Both wind and solar are clean and renewable sources of energy. They can make a perfect replacement for coal energy.

There have been apprehensions that abandoning coal may cause the Chinese economy to stall. Such concerns arise from the fact that coal is seen as a much cheaper source of industrial fuel relative to electricity. However, China has reduced its coal consumption considerably since 2013, yet the economy has remained unaffected. Between 2011, when the emissions reduction campaign began in China in 2014, the economy grew by about 7 percent annually.

This outcome is an indication that such apprehensions are baseless. Furthermore, scholars believe that as the economy of a country strengthens, it is more likely to adopt policies that protect the environment partly because a healthy environment is viewed as an indicator of high standards of living (Yang and Teng par.2). Hence, there is a positive correlation between China’s economic growth and the increasing drop in coal combustion in the country.

Some critics also believe that China’s reduction in coal burning is not a permanent change but rather a temporary blip. Both the Chinese and foreigners alike are expressing these fears. This concern is backed by various reasons. To begin with, China is the leading producer and consumer of coal in the world. Presently, over 64 percent of the country’s energy needs are still being satisfied by coal burning. Furthermore, until much recently, China had remained uncommitted to fighting climate change.

For these reasons, many people remained worried that its current policy on coal could be easily reversed in the near future. Notwithstanding, such fears should be allayed by the fact that coal burning has remained on a downward spiral in China since 2013. In 2014, coal combustion in China dropped by 2.9 percent compared to 2013. In 2015, the coal consumption saw an even larger drop, being 3.9 percent (Yang and Teng par.3). Given this positive trend, it is safe to conclude that the country is determined to sustain its global commitments to reducing carbon emissions.

Some critics argue that the coal reduction policy does not necessarily translate into reduced carbon levels in the atmosphere. Despite the amount of coal being used in China having reduced significantly over the last few years, cities such as Beijing continue to experience occasional smog. For example, in December 2016, the government declared two consecutive red alerts because of smog. The persistence of smog across China is surprising to many people, given the country’s commitment to curbing air pollution. As a result, many people now believe that the coal ban is unrelated to carbon emissions. However, this belief is not justified since statistical findings indicate that the level of CO2 in the atmosphere has decreased significantly since 2013 (Yang and Teng par.3).

The reason why smog continues to occur in China is contributed to by numerous factors and not the presence carbon particles in the air alone. These factors are both physical and chemical. Physical factors such as the speed of wind, relative humidity, and cloudiness influence the occurrence of smog in the nation. For instance, the country’s worst pollution occurs in the North during winter because wind speeds are low, causing particles to settle together forming dense fog (Buckley 7).

In addition, because these particles settle together, they can react with each other to form smog. Conversely, smog rarely occurs in warmer areas because solar radiation is absorbed, which then disperses the particles. Hence, the occurrence of smog years after the Coal Cap Policy was put in place should not be used as the indicator that carbon levels in the air have not decreased.

According to the Coasian bargaining theory, pollution control is usually effective if the transactional costs are low. As well, property rights must be clearly stated for private bargaining to occur smoothly. The challenge when it comes to the Chinese coal policy is that it is unclear who possesses the property rights, between the public and the industries. Further, the scenario is complicated by the introduction of third parties who are the other countries. However, in case the property rights are not clear, the government or the stakeholder in power puts in place a blanket protective measure.


China is the single biggest emitter of air pollutants across the world. The high levels of emissions by the nation are attributed to the use of coal as the primary source of fuel in the industries. Beginning 2009, China expressed interest in taking an active role in the global discussion on climate change and global warming. Consequently, in 2011, it expressed plans to cut the amount of coal burned in coal-fired power plants.

Already, China’s efforts are being felt with notable drops in CO2 levels globally. The country has begun investing in other cleaner energy sources, a clear indication that it is determined to pursue the Coal Cap Policy, despite fears by stakeholders that the policy has not reflected in cleaner air, particularly in the country’s northern cities, which continue to experience smog. However, the Chinese government has made it clear that the smog will not disappear instantly since it is caused by the interplay of numerous factors. Given this situation, the Coal Cap Policy has been effective and that it does not require any changes now.

Works Cited

Buckley, Chris. “Silver Lining in China’s Smog as It Puts Focus on Emissions.” New York Times, 31 Aug. 2013, pp. 6-8.

Li, Bing-Bing, et al. “A Comparative Study on Prediction Methods for China’s Medium-and Long-term Coal Demand.” Energy, vol. 93, no. 1, 2015, pp. 1671-1683.

Qi, Qi, et al. “Study on Sustainable Capacity of Coal Mining in China under the Micro-Macro Angle of View.” China Coal, vol. 38, no. 8, 2012, pp. 16-19.

Sun, Chuanwang, et al. “The Public Perceptions and Willingness to Pay: From the Perspective of the Smog Crisis in China.” Journal of Cleaner Production, vol. 112, no. 1, 2016, pp. 1635-1644.

Weibust, Inger. Green leviathan: The Case for a Federal Role in Environmental Policy. Ashgate Publishing, 2013.

Yang, Xi, and Fei Teng. “The Air Quality Co-benefit of Coal Control Strategy in China.Science Direct. Web.

Yuan, Jiahai, et al. “Coal Use for Power Generation in China.Science Direct. Web.

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