Agricultural Economics Department


Date of this Version



The paper examines the potential for emissions control policy using the example of the power generation sector in China. The analytical model is developed using a joint production function, where carbon emissions and electricity are jointly produced using capital and fossil fuel inputs. Abatement of emissions can be achieved by investment in two types of capital – production capital that improves the production efficiency, or abatement capital that removes the emissions. The analytical model shows that economic growth can be achieved while still keeping the emission stock at a stable level. The results are estimated using data from China’s electricity generation sector. The results show that the level of the tax required to stabilize emissions depends greatly on the efficiency of abatement activities. As an illustration of this result, one finding shows that the required emission tax would be reduced greatly from 16 to 5 yuan per ton of emission when the abatement technology is improved from removing 10% to 30% of emissions flow.