Can the electricity price subsidy policy curb NOX emissions from China's coal-fired power industry? A difference-in-differences approach.

Air pollution currently poses a serious threat to human health and sustainable development in China. In an attempt to reduce nitrogen oxides (NOX) emissions which are the major anthropogenic contributors to air pollution, China initiated an electricity price subsidy (EPS) policy in November 2011 for incentivizing coal-fired power plants to install denitrification units. However, the effectiveness of the policy in the reduction of NOX emissions and its sustainability are yet to be investigated. This study attempts to examine the effects of the EPS policy on NOX emissions and NOX removal, based on a panel-data set covering 113 prefectural-level cities in China during 2008-2015. Using a difference-in-differences (DID) regression model, we find that for each additional power plant in cities, the EPS policy significantly reduces NOX emissions by 1.1% and increases NOX removal by 2.8%. Furthermore, the results reveal that the overall effect of the EPS policy shows a positive trend with time accompanied by an increase in price subsidy, indicating that the efficacy of the policy designed for the reduction of harmful air pollutants is sustainable. In particular, we confirm that compensating for the construction and operation costs of denitrification units is an effective mechanism which encourages the coal-fired power plants to invest more in such units. The findings of the study accentuate the significant implication that economic-incentive policies play a crucial role in combating air pollution and environmental degradation.