Costs of China’s air pollution and cost to greatly reduce the problem

The cost of air pollution in China has been estimated at 6.5 percent of GDP. Applying that figure to China’s GDP of $8,227 trillion dollars in 2012, the year on which we base much of our analysis, implies that reducing air pollution in China to levels considered acceptable by WHO would yield annual benefits of $535 billion. As incomes rise and China becomes more urbanized, these costs are rising.

China’s GDP including Hong Kong and Macau will be about $11.6 trillion in 2015. This would mean the cost of the air pollution would be $750 billion.

Rand estimates the costs of three measures to reduce air pollution in China:
1. substituting natural gas or propane for coal for residential and commercial use
2. replacing coal with renewable and nuclear fuels to generate electricity
3. scrapping older vehicles.

Replacing coal used for residential and commercial use and about half of all coal used to generate electricity in 2012 would have resulted in a decline in coal use of 1.009 million metric tons, representing 27 percent of Chinese coal consumption that year.

The cost of replacing half of coal-fired power with water, wind, and nuclear power at $184 billion.

Hydroelectricity provided China with 0.866 trillion KWh in 2012, 17.4 percent of all the electricity generated in the country. China has plans to expand hydroelectric power capacity from 249 gigawatts (GW) to 325 GW.28 This additional capacity could generate 0.264 trillion KWh, equivalent to 5.3 percentage points of coal-fired power in 2012. Wind generated 0.102 trillion KWh of electricity in 2012. As of 2012, China had 61 GW in wind capacity connected to the grid. China has been rapidly expanding capacity, planning to have a total of 100 GW connected to the grid by 2015. This additional capacity could generate 0.064 trillion KWh, equivalent to 1.6 percentage points of coal-fired power in 2012. Solar power remains a marginal source of electricity, with only 3 GW installed as of 2012. However, the Chinese government plans to expand capacity to 35 GW by 2015.

Based on industry discussions, the authors have adopted a rule of thumb that wind or solar power would need to be constrained to provide a maximum of 20 percent of China’s power; above this threshold, difficulties arise in managing the grid. If China were to use wind to generate 0.996 trillion KWh (20 percent of the electricity China consumed in 2012), it would need to install an additional 540 GW of capacity to reach this goal, assuming that each additional GW of capacity generates similar levels of power as is currently the case. This is nearly nine times more than current installed capacity of wind and solar.

New nuclear power plants could also be constructed to provide electricity currently generated by coal. If hydro power were to provide an additional 0.264 trillion KWh and wind an additional 0.894 trillion KWh, that would mean that additional nuclear power plants would have to supply 0.658 trillion KWh, or 15.2 percent of China’s electric power output as of 2012, to allow China to reduce coal-fired power by 39 percentage points. In 2012, 2.0 percent (0.098 trillion KWh) of
China’s power consumption was generated by nuclear power. We estimate that in 2012, Chinese nuclear power plants achieved capacity utilization of 90 percent, slightly better than the United States, where nuclear power plants achieved an 86 percent capacity utilization rate in that year. Assuming that China maintains its performance of 2012, China would need to build 84 GW of additional installed nuclear capacity, somewhat more than the current goal of an additional 58 GW by 2020.